Shipyards' Plight Hits Won Hard

Korean shipbuilders rank Nos. 1 to 3 in sales but they are also being buffeted by the global economic storm. Their plight has also hit Korea hard, an exports-driven country whose currency, the won, has lost a significant portion of its value against other currencies. Korean Shipbuilders used to work as a key buffer against currency fluctuations, because ship deals were big and down payments, often paid in dollars, were sizable.
According to industry sources, the usual practice is that a shipbuilder immediately takes a $10 million down payment from a $100 million order for a ship to be delivered by 2010.
For instance, Hyundai Heavy Industries, the world's biggest shipbuilder, got orders worth close to $30 billion.
The remaining $90 million will be paid up often in five installments until the delivery date. This also enables the banks to get hold of foreign currency.
The problem now is that shipbuilders are not getting many new orders as their dollar infusion dries up.
In January, Koreas "big 3" shipbuilders ― Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding & Marine Engineering (DSME) ― booked one shipbuilding order on a combined basis.
"Few inquiries are being made, though we are fully set to cut prices for shipbuilding," an official from Hyundai Heavy told The Korea Times, Thursday.
Hyundai Heavy cut this year's order target by 23.2 percent to $21.1 billion from the previous year, while Samsung Heavy set $10 billion in orders for the year ― a decrease of 33.3 percent from 2008.
"There is a high chance that shipbuilders may experience severe difficulties in getting new orders over the next few years, as ship owners were hesitant to make new orders amid the global economic downturn," Han Jong-hyup, vice president of the Korea Shipbuilders' Association said.
"That's bad news for the local foreign currency market and even banks," a foreign current trader said.
Concerns are again mounting that South Korean banks may face potential dollar shortages as the Korean economy could experience another sharp blow from the ongoing financial crisis.
"Along with makers of consumer electronics and cars, shipbuilders had been another strong contributor to supply the greenback to the currency market via forward-exchange transactions. But now, it is high unlikely for the currency market to expect a shipbuilder effect," said the trader.