Mitsui Engineering's 2005 Operating Profit to Fall (Correct)

(Corrects price of oil tanker in eighth paragraph.)

Dec. 2 (Bloomberg) -- Mitsui Engineering & Shipbuilding Co., Japan's No. 3 shipbuilder, said operating profit may decline a third year in the 12 months starting April 2005, due to the country's strengthening currency and rising steel prices.

``Things will be very tough'' for Mitsui Engineering if the yen's gains against the U.S. dollar continue, said Shoichi Yabuki, the Tokyo-based shipbuilder's managing director, in an interview yesterday, without giving a specific forecast. ``We will be entering a crucial stage in the next business year.''

Mitsui Engineering's operating profit, or sales minus the cost of goods sold and expenses, is likely to fall for a second year in the 12 months ending March 2005, dropping 56 percent to 5 billion yen ($49 million), according to the company's forecast last month. Yabuki did not forecast the operating profit or net income figures for the year beginning in April 2005.

Like its larger competitors, Mitsui Engineering's profit margin is being eroded by rising steel costs, as increasing demand from China pushed up world prices for the metal. A stronger yen also hurts Japanese builders because their ships, sold in U.S. dollars, are worth less in local currency terms when repatriated.

The Japanese currency traded at 102.64 yen per U.S. dollar as of 8:10 a.m. in Tokyo, stronger than Mitsui Engineering's 110 yen per dollar forecast for the year. The yen's value has risen 5.5 percent against the dollar in the past 12 months.

In Tokyo, Mitsui Engineering's shares fell 0.6 percent yesterday to 171 yen.

2006 Recovery

The company's shipbuilding operations will probably recover in the business year starting in April 2006, helped by an increase in order and as the price of new vessels recover, Yabuki said. The price of new ships has been slumping since the Sept. 11 terrorist attacks, which raised concerns of maritime terrorism.

The price of a tanker that can carry at least 200,000 tons of oil, used as an industry benchmark, rose to $105 million in October, from the 2003 average price of $68.8 million, according to data by U.K.-based shipbroker Clarkson Research.

The average price of a bulk carrier with capacity of at least 150,000 tons rose to $63 million in October from the 2003 average price of $40.9 million.

Global order for new ships rose 80 percent in 2003, helped by growing demand for marine transportation to and from China. Global shipbuilding order totaled 36.61 million compensated gross ton, a measure of building time and manpower used per ton.

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net.

Last Updated: December 1, 2004 22:33 EST