Korean Shipyards plight hits won

Korean shipbuilders rank Nos. 1 to 3 in sales but they are also being buffeted by the global economic storm.

The plight of Korean shipbuilders has hit Korea hard, an exports-driven country whose currency, the won, has lost a significant portion of its value against other currencies. Korean Shipbuilders used to work as a key buffer against currency fluctuations, because ship deals were big and down payments, often paid in dollars, were sizable.

According to industry sources, the usual practice is that a shipbuilder immediately takes a $10 million down payment from a $100 million order for a ship to be delivered by 2010. For instance, Hyundai Heavy Industries got orders worth close to $30 billion. The remaining $90 million will be paid up often in five instalments until the delivery date. This also enables the banks to get hold of foreign currency.

The problem now is that shipbuilders are not getting many new orders as their dollar infusion dries up. In January, Koreas “big 3” shipbuilders, Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding & Marine Engineering (DSME), booked only one shipbuilding order.

“Few inquiries are being made, though we are fully set to cut prices for shipbuilding,” an official from Hyundai Heavy told The Korea Times. Hyundai cut this year’s order target by 23.2 % to $21.1 billion from the previous year, while Samsung set $10 billion in orders for the year, a decrease of 33.3% from 2008.

“There is a high chance that shipbuilders may experience severe difficulties in getting new orders over the next few years, as ship owners are hesitant to place new orders amid the global economic downturn,” Han Jong-hyup, vice president of the Korea Shipbuilders’ Association said. Concerns are again mounting that South Korean banks may face potential dollar shortages as the Korean economy could experience another sharp blow from the ongoing financial crisis.