South Korean shipbuilders’ focus on the most complicated and expensive vessels has allowed them to double their share of global orders this year as China’s low-end strategy fails to pay off.
Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co., the world’s three largest shipyards, have won 40 percent of orders in 2011 as higher oil prices spur demand for liquefied-natural gas tankers and drill ships. Chinese yards’ 2011 contract tally is worth about 25 percent of Korea’s, based on Clarkson Plc data, as a glut of commodity ships damps demand in their main market.
“It’s been a good year for Korean shipyards and it’s going to get even better next year,” said Park Moo Hyun, an analyst at E*Trade Securities Co. in Seoul. “For Chinese builders, 2012 may be difficult because there is just too much capacity.”
A 19 percent slump in global ship orders this year has predominately hit Chinese yards, with six of the 10 biggest failing to win any orders since late June. Korean shipbuilders have avoided the slowdown as they have largely ceded the dry-bulk and small container-ship market to low-wage China yards.
“It’s now become a race for survival for shipyards in China,” said Cho In Karp, head of research at Heungkuk Securities Co. in Seoul. “If they don’t have a source of income other than traditional shipbuilding, it’s going to be very difficult to remain in business.”
Hyundai Heavy, based in Ulsan, South Korea, has already exceeded its $12.3 billion sales target for this year, helped by 10 orders for drill ships worth $5.5 billion. That’s the largest number of deals for such ships the company has won in a single year, according to Hur Sung Duck, an analyst at HI Investment & Securities Co. in Seoul. The vessels are used by oil companies to drill test wells in deep waters.
In June, the shipyard also won the world’s first order to build two floating storage and re-gasification units from scratch. The units, which hold LNG and then turn it back into natural gas, have traditionally been made by converting oil tankers.
Hyundai Heavy gained 0.9 percent to close at 281,000 won, the highest price in a week, in Seoul trading today. Daewoo Shipbuilding advanced 1.6 percent and Samsung Heavy climbed 1.3 percent.
$100 Billion Spending
Demand for offshore products, including floating oil and gas production units, may increase as companies develop new fields. Royal Dutch Shell Plc has said it plans to spend $100 billion in four years through 2014 to maintain output growth. Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, said last month it plans to drill more than 1,000 offshore wells through 2015. The price of oil has risen about 20 percent in the past two years.
“In an uncertain market, you want to spend on something you know will earn you money and energy is just that,” said Richard Park, an analyst at Korea Investment & Securities Co. in Seoul. “Korean shipyards are the ones that will benefit the most from this.”
In total, Korean yards have won $37.8 billion of orders this year, compared with $10.3 billion for China, according to Clarkson. Samsung Heavy has won $14.8 billion of orders, beating its $11.5 billion target, while Daewoo Shipbuilding has $10 billion, compared with an $11 billion goal.
The two Seoul-based shipyards have received contracts for semi-submersible drilling rigs, floating oil storage and production units, LNG carriers and drill ships. Daewoo Shipbuilding has also won orders worth $3.7 billion to build 20 ships able to hold 18,000 containers each from A.P. Moeller-Maersk A/S. The vessels will be the largest of their type.
New orders for Chinese shipyards fell 37 percent to 28.07 million deadweight tons in the eight months through August, the National Development and Reform Commission said in a statement on its website today. Contracts in August plunged 60 percent, and about 40 percent of shipbuilders haven’t won orders this year, it said.
Overall global ship orders fell to the lowest monthly tally since November 2009 in August, according to Clarkson data, as the European debt crisis compounded waning demand for vessels.
“There have been concerns that some customers may put off or cancel plans for new ships because it may be getting more difficult to get funds,” said Korea Investment’s Park. “European banks have traditionally been big lenders for ships.”
Korean yards may also face more competition from China over the next few years as they develop better technology, said Arjun Batra, a managing director at Drewry Shipping Consultants Ltd. China Rongsheng Heavy Industries Group Holdings Ltd. is already building a deepwater pipe-laying crane ship, which is due for delivery this year. It is also developing LNG vessels with Gaztransport & Technigaz SAS and STX France SA.
Yangzijiang Shipbuilding Holdings Ltd. in June became the first Chinese shipyard to win an overseas order for ships able to hold 10,000 containers. Lessor Seaspan Corp. ordered as many as 25 vessels from the shipyard, while Peter Dohle Schiffahrts-KG signed a letter of intent for eight more the same month.
The Korean yards now “have the technological skills, engineering skills, design skills, production skills and quality,” Batra said. “But the Chinese will catch up.”
Still, challengers to the big three Korean yards will need time to break their grip on the energy market. Changwon, South Korea-based STX Offshore & Shipbuilding Co., the world’s fourth-biggest shipbuilder, has won two orders for drill ships from Noble Corp. in a deal signed in September 2008. It hasn’t got contracts from anyone else.
“The top-tier yards have a huge advantage because owners know they will deliver quality goods on time,” said Lee Sokje, an analyst at Mirae Asset Securities Co. in Seoul. “They will be able to pick and chose which contracts they want into next year.”