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Shipbuilders face gloomy order outlook for 2017

Dec. 27, 2016 - 09:47 By 임정요

South Korea's top three shipbuilders are expected to suffer from tough business conditions in 2017 with their orders likely to reach levels similar to this year, industry sources said Tuesday.

In the face of a global vessel glut and fiercer competition from Chinese rivals, the three shipyards -- Hyundai Heavy Industries Co., Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. -- are struggling to set their order targets for next year, according to the sources.

Industry leader Hyundai Heavy Industries has reportedly set its 2017 order target at a level similar to this year's $9.5 billion.

In the first 11 months of this year, the shipyard bagged contracts worth $7.1 billion, much lower than its goal of $19.5 billion set at the start of the year.

In mid-November, Hyundai Heavy Industries trimmed its order target, which market watchers say is very unusual and mirrors serious difficulties clinching orders and high market uncertainty.

"The company will do its best to meet the revised target," a company official said. "Based on that, we will finalize the order target for the coming year."

Daewoo Shipbuilding & Marine Engineering Co. is shooting for a 2017 order number that is similar to this year's goal of $6.2 billion or undershoots the figure. At the start of the year, the troubled shipyard aimed to win orders worth $10.8 billion this year but was forced to cut the figure in June.

Due to the complete erosion of its capital, Daewoo Shipbuilding & Marine Engineering has been facing hardships clinching orders this year, with its orders coming to a mere $1.55 billion in the January-November period.

Samsung Heavy Industries Co. is expected to set its 2017 order target at a level that is slightly higher than $5.3 billion for this year, as the company is likely to clinch a 3 trillion-won ($2.5 billion) order for the construction of a floating LNG unit from Italian petroleum giant Eni SpA early next year.

In May, Samsung Heavy Industries slashed its order target from $12.5 billion at the beginning of the year. In the first 11 months of this year, the shipyard obtained orders worth $520 million.

Global research firm Clarkson Research Services has forecast that the world shipbuilding industry will continue to face an "order cliff" next year and make a full-fledged recovery starting in 2018, with global ship orders reaching one-third of the usual level.

Some local experts, however, expressed guarded optimism for next year, saying shipowners may place more orders in the belief that the market has bottomed out.

South Korean shipbuilders have been under severe financial strain since the 2008 global economic crisis, which sent new orders tumbling amid a glut of vessels and tougher competition from Chinese shipyards. The top three shipyards logged a combined operating loss of 8.5 trillion won last year due largely to increased costs stemming from a delay in the construction of offshore facilities and an industrywide slump.

The shipbuilders have drawn up sweeping self-rescue programs worth 11 trillion won in desperate bids to wade through the protracted slump and escalating losses. (Yonhap)