Korean shipyards face BRIC challenge

Korean shipbuilders’ earnings are forecast to improve through 2008 and beyond as the tight supply and demand balance allows them to pass on rising costs, said US-based investment bank Lehman Brothers in a report.

Lehman’s expects earnings at the shipyards to report a 64% growth over the 2006-2008 period as revived interest in container ship investment amid continued demand for tankers and gas carriers is increasingly making global shipbuilding a seller’s market.

“At the same time, Korean shipyards are keener on managing risk and costs by hedging their foreign exchange exposure and procuring lower-cost steel plates from China,” the report said.

It also noted that Korean shipyards’ flexible vessel design capabilities are the key differentiating factor that positions them ahead of their Japanese and Chinese counterparts. Yet, it might not be all smooth sailing for Korea’s shipyards after 2008 with Brazil, Russia, India and China rushing to build large shipyards to meet the growing demand for vessels to transport oil and raw materials, according to maritime information portal site Marine-net. The industrial expansion of the so-called ?BRIC? economies to build more ships on their own could challenge Korea’s position as the world’s leading shipbuilder in a decade, industry sources said.

“Japanese shipyards receive enough domestic orders to survive on, but Korean shipbuilders depend heavily on exports as they account for more than 95% of sales,” said an official of the Korea Shipbuilders? Association. “The impact could be intimidating should the BRIC nations attain self-sufficiency in vessels.” The biggest potential competitor, China, is building large-scale dockyards in Shanghai, Qingdao and Shandong Province on the country?s eastern coast. After construction projects are completed in 2008, China’s total shipbuilding capacity is projected to reach between 7 and 10 million gross tonnage annually. Korea’s nine largest shipyards currently have the capacity to build about a million gross tonnage per year.

India, which had been passive in shipbuilding, is scheduled to invest more than $1 billion to build two large shipyards on the eastern and western coasts. The Indian government also plans to spend $200 million in improving existing shipyards.

Awash with oil revenue, Russia also plans to build a new shipyard on the Baltic Sea. Several European shipbuilders are studying investment opportunities in the new dockyard where vessels as large as 100,000 dwt are expected to be produced.

In southern Brazil, construction of a new shipyard is on target to be completed by 2008. Some $208.8 million will be invested in the new facility with a 360-metre long dock.

To make up for the lack of technology, shipyards of the BRIC nations are purchasing shipbuilding know-how from Korea, Japan and Europe.