Development of components, equipment needed to maximize profits, analysts say


Korea’s three big shipbuilders are focusing on winning orders for global offshore plants and related manufacturing projects, a business they deem lucrative.

Industry sources said the offshore plant business appears to be a new growth engine for Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries.

Backed by the Ministry of Knowledge Economy and the Ministry of Land, Transport and Maritime Affairs, the offshore plant business is expected to further serve as a stepping stone for the big three to become total engineering, procurement and construction companies in the sector in the long run, sources said.

Korea’s shipbuilders, utilizing their long-standing years of knowledge and expertise in constructing ships for global customers, are known for their strength, especially in the procurement and construction of offshore production facilities, drill ships, jack-up oil rigs and floating production storage and offloading units.

They said that Korea’s capability, however, does not extend to the engineering or the development of components and materials of equipment and machinery in which the big three are heavily reliant on foreign technologies or imports.

Investment in research and development, human resources and infrastructure, possibly in Busan, to develop proprietary components and materials is an issue that remains untouched even by the government, and is urgently needed to catch up with dominant players from the U.S. and Europe.

One source said that, for example, when a company wins to build a $500 million offshore plant, half the money is allocated to spending on drill equipment, while the rest is for materials. Most owners that place orders for offshore plants or drill rigs use U.S. or European materials and equipment.

In this sense, Korea’s big three work much like original equipment manufacturers, or simply assemblers, while using foreign engineers.

A Korean company normally brings in about 200 technicians from overseas for the construction and inspection of offshore plants, compared with fewer than a dozen for cargo vessels, the source said.

Korean companies’ increasing interest in offshore projects comes as the global slowdown in the shipping industry stemming from Europe’s financial crisis is diminishing orders for cargo vessels. Also, this is in line with Korea’s interest in tapping offshore oil and gas, they explained.

Only the big three can handle the task of developing such sophisticated and massive-scale projects, the sources said, noting that they are too huge for any other shipbuilders or engineering companies, including small and medium-size enterprises.

Global orders to build offshore and related projects won by the big three reached $9.6 billion as of the end of the first quarter of 2012, according to media reports. Koreans are grabbing nearly 80 percent of the total globally, one industry source noted, thanks to their price competitiveness and know-how in shipbuilding.

Daewoo Shipbuilding secured an order to build a FPSO unit from Inpex, a Japanese oil and gas explorer and producer early this year, while Samsung Heavy also won a contract to develop a processing facility from Inpex. Hyundai Heavy has developed its own model of LNG FPSO, according to media reports.

By Park Hyong-ki  (hkp@heraldcorp.com)