STX looking to diversify

The chairman of South Korea’s STX Group added to the growing pessimism in the global shipbuilding industry by arguing that the company should move to hedge its bets in the emerging renewable energy sector.

“The shipbuilding and shipping markets won’t see a boom in the near future. This is a time for a new business paradigm,” Kang Duk-soo said in a meeting with the company’s senior executives, last week. “Our business is highly dependent on shipbuilding and shipping, and should the two segments plunge any deeper, we will have to worry about survival.”

Although STX still has a full shipbuilding orderbook for next year, the future looks uncertain. Kang said that he has seen some slight evidence of market recovery in recent months but added that signs of protectionism are taking a toll on the group’s further expansion.

“We need to put more focus on off-shore related businesses in energy development and industrial plans to balance our revenue engines,” Kang said, while also promising stricter management in cost and production efficiency as part of the company’s “contingency plans.”

“Since 2005, STX has been pushing offshore, industrial plant and solar businesses as the group’s next engines. But those pitches haven’t paid off due to meagre attention,” Woori Investment, a local brokerage, said, adding the corporate shift for new revenues needs “considerable time” to reap expected profits.

To counter a bleak outlook for the sector and increased competition from China, STX’s bigger competitors, including Hyundai Heavy Industries and Samsung Heavy, are rushing to increase the portion of their non-shipbuilding businesses such as offshore, wind turbine construction and industrial plants by reducing the shipbuilding section.