Shipbuilding on the rise in South Korea - Ports And Shipping

Business Asia, August, 2003

The world's largest shipbuilder, Hyundai Heavy Industries Co, and other South Korean shipbuilders more than doubled their orders in the second quarter as more shipping companies replaced older vessels and exports from Asia rose.

Orders for oil tankers, container ships and other vessels rose to 3.8 million compensated gross tonnes, a measure of building time and manpower used per tonne, worth US$5.2 billion ($7.9 billion). This was an increase from 1.8 million compensated gross tonnes a year earlier, according to the South Korean Ministry of Commerce, Industry and Energy.

Demand for new ships, particularly double-hulled oil tankers, is increasing after on oil spill from a tanker wrecked off the coast of Spain in November prompted the European Union to impose stricter rules on old vessels.

"Orders received in the first half already exceed contracts won for all of last year," the Ministry says. "There may be an adjustment period as shipbuilders try to raise prices and be more selective in orders they win."

Record orders

South Korean shipbuilders received a record 7.8 million compensated gross tonnes of orders in the first half, almost triple the contracts won in the same period last year, worth US$10.57 billion, the Ministry says.

This exceeds the Ministry's forecast in January that orders may increase about 1.4 per cent this year to 7.7 million compensated gross tonnes.

Shipbuilders are also winning more orders for vessels that carry liquefied natural gas, liquefied petroleum gas and ships that carry more than 7100 20-foot containers, which yield higher profit margins than ordinary cargo ships.

These vessels accounted for 18.5 per cent of total orders won in the first half, compared with 13.9 per cent at the of last year.

The shipwreck off Galicia, in northwest Spain, is increasing demand for safer vessels as shipping companies seek to upgrade their fleets. The Prestige, a single-hull oil tanker carrying 77,000 metric tonnes of heavy fuel oil, split apart 250 kilometres from the coast, spilling 15,000 tonnes of oil on Spanish beaches.

The European Union agreed in December to ban single-hulled tankers from transporting heavy grades of oil to and from European ports to avert future spills.

Phased out

European countries also want to accelerate the phasing out of single-hulled tankers, now scheduled for 2015. They may also ban vessels that are 15 years old or more from carrying heavy fuel oil within 200 miles of their coastlines.

Asian shipping lines are benefiting as companies like Wal-Mart Stores, the world's largest retailer, buy more toys, garments and elections products from the region.

Container trade is forecast to grow at two percentage points faster than the supply of ships this year and in 2004, according to Clarkson Research Studies.

Asian exports to the US rose nine per cent on year to US$178 billion in the first five months of the year, according to the US International Trade Commission.

South Korean shipbuilders' vessel sales overseas rose 27 per cent US$3.5 billion in the second quarter.

The backlog of orders was 21.11 million compensated gross tonnes at the end of June, 41 per cent more than a year earlier. That will keep south Korean dockyards busy until 2005.