JFE, IHI in Talks to Combine Shipbuilding Operations

jfe holdings inc. ａnd ihi corp. are in talks to create japan＇s biggest shipbuilding company to compete against south korean ａnd chinese yards. "we＇re in discussions with jfe about shipbuilding operations,＇＇ said keiichi sakamoto, an tokyo﹣based ihi spokesman. ``details have yet to be decided.＇＇ jfe, japan＇s second﹣biggest steelmaker, declined to comment. the nikkei newspaper said today the tokyo﹣based companies will merge shipbuilding units as early as this year. the new company would have sales of 345 billion yen ($3.1 billion), becoming the world＇s sixth﹣biggest shipyard behind south korean ａnd chinese rivals. ihi, facing a delisting ｆrom the tokyo stock exchange for overstating earnings, ｃounts on shipbuilding for about 14 percent of total sales.
``japanese shipbuilders need to merge ａnd become bigger to compete against south korea ａnd china,＇＇ said cho in karp, a seoul﹣based analyst at good morning shinhan securities co. he has a ``buy＇＇ rating on ulsan, south korea﹣based hyundai heavy industries co., the world＇s biggest shipbuilder. ``japanese shipyards need to find a way to keep their businesses going.＇＇
ihi＇s shipbuilding unit ihi marine united inc. will be folded into jfe＇s universal shipbuilding corp. venture with hitachi zosen corp., japan＇s second﹣largest maker of diesel vessel engines, the nikkei reported, without saying where it got the information.
jfe will initially raise its stake in universal to 80 percent ｆrom 50 percent, leaving hitachi zosen with the remainder. the nikkei didn＇t specify ihi＇s stake in the venture.
ihi shares gain
ihi, which also builds jet engines, liquefied natural gas terminals ａnd nuclear power equipment, rose 1.4 percent to 218 yen in tokyo after climbing as much as 7.4 percent. jfe fell 0.6 percent to 5,460, after gaining as much as 4.4 percent. ihi ｄropped 42 percent in the past 12 months, a decline accelerated by an earnings restatement that prompted chairman mototsugu ito to resign.
japan lost the title of the world＇s biggest shipbuilding nation to south korea in 2003, while china overtook japan two years ago, according to clarkson plc, the world＇s biggest shipbroker.
consolidation in japan＇s shipbuilding industry is necessary to fend off competition ｆrom china ａnd south korea, ito told reporters on july 1, when he was chairman. ihi was renamed on the day ｆrom ishikawajima﹣harima heavy industries to mark the company＇s expansion beyond its historical roots as a maker of ships ａnd heavy machinery.
``things will be tough on competition unless we have 2﹣to﹣ 2.5 times the size of our shipbuilding business ｆrom the current level,＇＇ ito said at the time.
rising demａnd
traffic at asian ports is surging ａnd raising demａnd for vessels. trade between asia ａnd europe may rise 20 percent this year led by growing demａnd in russia, according to the 16﹣member far eastern freight conference. the group＇s members acｃount for about 70 percent of container﹣shipping capacity on the route.
a.p. moeller﹣maersk a／s, the world＇s largest shipping line, ａnd rivals are buying vessels to supply iron ore, coal ａnd oil to china ａnd export manufactured goods to europe ａnd the u.s.
ihi in august won an order to build three container ships that will be the biggest made in japan. the vessels for nippon yusen k.k., japan＇s largest shipping line, will each be able to carry 9,300 stａndard 20﹣foot containers. south korean yards now make vessels that can carry 12,000 containers.
unexpected costs
ihi on dec. 14 said its first﹣half loss widened to 37.3 billion yen in the six months ended sept. 30, ｆrom a restated 10.1 billion yen loss a year earlier, because of unexpected engineering ａnd project costs. the company is being investigated by the tokyo stock exchange over the earnings restatement.
chief ｅxecutive officer kazuaki kama in december called the situation ``an unprecedented crisis＇＇ for the company, which started as a shipyard in 1853 on ishikwajima islａnd in tokyo. ihi got 14 percent of sales ｆrom shipbuilding in the six months to sept. 30, 2007, while aerospace was the biggest contributor, acｃounting for 23 percent.
the earnings restatement is ``pressuring the company to accelerate a reorganization of shipbuilding operations,＇＇ said yuuki sakurai, who helps manage the equivalent of $41.5 billion in assets at fukoku mutual life insurance co. in tokyo. ``the move would enable the company to make better use of resources to allocate more important operations, such as jet engines.＇＇
south korean shipyards, including hyundai heavy ａnd samsung heavy industries co., have been increasing productivity ａnd expａnding capacity as they work through backlogs that stretch into 2012 ｆrom five consecutive years of record orders.