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Korea’s mega-merger of shipyards set to dominate global shipbuilding

Logistic News - Published on Mon, 11 Feb 2019

Image Source: Wall Street Journal
Wall Street Journal reported that Shipyards in South Korea are trying to forge a new shape for the industrial sector that underpins global shipping. The merger of Hyundai Heavy Industries Co and Daewoo Shipbuilding & Marine Engineering Co being engineered in Seoul promises to create a behemoth controlling 20% of the global market for new ships, and an even bigger share of the market for the liquefied natural gas carriers that are reconfiguring global energy markets. The combination also would leave rival yards in China and Japan struggling to compete, raising questions about those countries’ commitment to supporting their own ship builders. Shipbuilding is a vital part of the economies of Asian countries such as South Korea and China, employing hundreds of thousands of people. Seoul and Beijing repeatedly bailed out or subsidized money-losing shipyards during a long slump in maritime trade as vessel operators trimmed their fleets and new orders plummeted.

But the industry is now regaining its bearings, boosted by big trends in energy markets and new regulations. Stricter marine pollution rules that take effect next year, as well as rising demand for advanced ships such as LNG carriers, have triggered a wave of new orders to replace aging fleets. The merged Korean superyard may benefit the most. Between them, HHI and DSME have 52% of existing orders for LNG carriers, and they control a fifth of the broader ship building market, according to marine data provider VesselsValue.

The total combined Korean order-book now is worth USD 31.4 billion, compared with USD 15.2 billion for China’s top two shipyards—China State Shipbuilding Corp. and China Shipbuilding Industry Corp—which also plan to merge.

Japan’s two biggest facilities, Imabari Shipbuilding Co. and Oshima Shipbuilding Co., are separate companies with a combined order-book of USD 12.6 billion.

A senior Korean official involved in the merger, said that “Our efforts over the past five years was to keep HHI and DSME from sinking. The target now is to create a yard facility that will dominate ship orders, especially high-margin vessels like LNG carriers, for years to come.”

According to shipbuilding executives, LNG ships cost on average USD 175 million apiece and the profit margin for the companies that build them is almost double that of other vessels. Bulk carriers typically cost around USD 25 million each.

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Posted By : Joykumar Irom on Mon, 11 Feb 2019
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