Struggling with technology and a plunge in oil prices that has discouraged exploration, Korean vessel makers are racking up debt and could show billions of dollars in losses, reports Bloomberg.
The Big Three shipbuilders in South Korea ventured into offshore oil rigs starting around 2010 with a goal to avoid direct competition with China. The idea appeared excellent then, with oil prices climbing toward $100 a barrel.
Today the strategy seems to have backfired. The deep-ocean strategy is coming back to bite Korean shipyards.
The Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries “excessively competed to win offshore plants to make up the gap caused by falling demand for ships,” Yang Jong-seo, a research fellow at the Korea Eximbank Overseas Economic Research Institute (KERI), a government think-tank, said. “That excessive competition was their biggest mistake.”
What's more, worldwide, the shipbuilding industry is seeing fewer orders as a sluggish global economy and low freight rates discourage ship owners from buying new vessels.
This week is a test for the Big Three as they begin reporting second-quarter earnings. Analysts forecast the companies will post profits, but shares of the three companies have been plunging on media reports of a challenging quarter.
Shipbuilding has been central to Korea’s economy since the 1970’s. Ships accounted for 8.5 percent of the country’s total exports through June 20 of this year, up from 7 percent for all of 2014, according to the trade ministry.