March 2 (Bloomberg) -- JFE Holdings Inc. and IHI Corp. will seek to increase sales of their combined shipbuilding units by about 30 percent in five years to fend off competition from South Korean and Chinese rivals.
The units, set to be merged on Oct. 1, will target annual revenue of 500 billion yen ($6.2 billion) by 2017, Shinjiro Mishima, who will be president of the new entity, said in an interview. The company will speed up development of fuel-efficient and cost-competitive ships, focusing on container vessels, bulk carriers and oil tankers, he said.
Combining JFE’s Universal Shipbuilding Corp. and IHI Marine United Inc. will create Japan’s biggest shipbuilder that will challenge larger rivals including Hyundai Heavy Industries Co., the world’s largest. Japanese shipbuilders are struggling as slowing economies sap demand for new ships and a rising yen makes locally built ships more expensive than vessels made in South Korea and China.
“We are aiming for expansion, though we need to slim down operations when the environment is bad,” Mishima, who is also the president of Universal Shipbuilding, said in the Feb. 29 interview at the company’s Kawasaki headquarters, near Tokyo.
The global market share of Japanese shipyards has more than halved to 12 percent since 2005 as measured by new orders, according to data compiled by the Shipbuilders’ Association of Japan. Japan lost its title as world’s biggest shipbuilding country to South Korea in 2000 before falling to third place behind China in 2009.
The Japanese currency, which rose to a postwar high on Oct. 31, traded at 81.27 yen to the dollar at 9:35 a.m. in Tokyo. The yen has gained 20 percent in the past three years.
The new company will continue purchases from Nippon Steel Corp. and JFE Steel Corp., aiming to win larger price cuts by increasing orders, Mishima said. A global oversupply of ships will drive prices down until 2015, after which sales will probably revive, he said.
Japan’s shipbuilding industry will need to consolidate, Kazuaki Kama, chairman of the shipbuilding association and the president of IHI, said on Feb. 21. There are “too many” shipbuilding companies in Japan, even as domestic shipping lines have combined into three large companies and steelmakers have united into two groups, he said.
Nippon Yusen K.K., Mitsui O.S.K. Line Ltd. and Kawasaki Kisen Kaisha Ltd. are the three major Japanese shipping companies, while domestic steelmakers have formed two groups -- one led by Nippon Steel and the other by JFE. Nippon Steel plans to merge with its alliance partner Sumitomo Metal Industries Ltd. in October, creating the world’s second-larger steelmaker.
JFE and IHI will each hold 45.93 percent of the new company, while Hitachi Zosen will take 8.15 percent. The merged entity will “welcome” other Japanese shipyards should they seek to join, Mishima said. The merged group ranks fourth or fifth worldwide, he said in January.
The two units had combined sales of 382 billion yen in the financial year ended March 31. Hyundai Heavy’s sales reached 25 trillion won ($22 billion) last year, of which shipbuilding accounted for 38 percent, or 948.7 billion won.
Japan needs to form a shipbuilder with annual sales of about 500 billion to pare costs and speed investment in energy-saving ships, Mishima said March 2, 2011.
South Korean shipbuilders, with combined annual sales of as much as 1 trillion yen, are the main threat to Japanese yards, Mishima told reporters on Jan. 30, when the merger was announced.
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