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Sunday, March 05, 2006

The Korea Herald : The Nation's No.1 English Newspaper

The Korea Herald : The Nation's No.1 English NewspaperChina's expanding shipyards threaten Korea

China's shipbuilders plan to double production capacity by 2010, threatening a glut that may cut profits at Hyundai Heavy Industries Co., the world's biggest builder, and other South Korean yards.

Chinese shipmakers are undercutting competitors in Korea and Japan as they bid to increase market share. Beijingbased China State Shipbuilding Corp.'s new shipyard on Changxing Island near Shanghai, which starts constructing oil tankers next year, will overtake Korea's Hyundai Heavy as the world's biggest when it's completed in 2015.

The rise of China's shipbuilding industry may cause today's near-record prices for vessels to fall as Changxing and other yards compete with Korean and Japanese rivals for business, investors including Song In-ho said.

The dockyard of China State Shipbuilding Corp.
“The speed of capacity increases in China is somewhat threatening to Korean shipbuilders," said Song, who counts Hyundai shares among the $413 million in assets he helps manage at Kyobo Investment Trust Management Co. in Seoul. Chinese yards have 20 percent of global orders for ships measured by cargo capacity, according to London-based shipbroker Clarkson Plc. Hyundai and other Korean builders have 35 percent and Japan's yards 32 percent. Shipyards outside Asia have less than 10 percent of global orders.

China's shipbuilders will double capacity in the next five years, state news agency Xinhua reported, citing Zhu Rujing, an analyst with the Beijing-based China Shipbuilding Economy Research Center. As well as the Changxing project, new shipbuilding docks are planned at Bohai in northern China and Guangzhou in the South.

Profit at Hyundai, based in Ulsan, rose fivefold last year as it benefited from record orders and shipbuilding prices that have more than doubled since 2002. Daewoo Shipbuilding & Marine Engineering Co., the world's second-largest shipbuilder, said last month that its fourth-quarter profit more than tripled.

“The rise of the Chinese yards is definitely a risk factor for Korean shipbuilders," said Choi Chang-hoon, who helps manage about $1.1 billion at Woori Asset Management Co. in Seoul.

“Competition is increasing." Frontline Ltd., the world's largest tanker company by capacity, may order four VLCCs from Changxing for $105 million each, London-based shipbroker Clarkson Plc said on Feb. 10. The price of a VLCC at a Korean or Japanese yard is $123.5 million, the broker said.

“Shipyard capacity is well past the 1976 peak, with more on the way," Martin Stopford, Clarkson's head of research, who's speaking at the Shipping China 2006 conference that starts in Shanghai this week, said on Dec. 12. "Record shipyard capacity is a reminder that oversupply can be very painful."

Shipyard prices have more than doubled since 2002 as rising demand for oil and other commodities increased orders for oil tankers and cargo ships.

The global oil tanker fleet will grow 6.5 percent this year, according to Maritime Strategies International Ltd., a Londonbased consulting company, the fastest pace of growth since 1976.

To be sure, shipyard earnings may stay near today's highs for several years as yards complete current orders and before all China's planned dockyards come on line. Order books remain full at Hyundai, Daewoo and other Korean shipbuilders until the beginning of 2009.

Korean yards dominate the market for liquefied natural gas carriers, the most expensive and technically complicated type of cargo ship. China State Shipbuilding will complete the country's first LNG ship this year. Hyundai has orders for 17 of the gas tankers, which cost $215 million each, according to Clarkson.

“Korean yards can concentrate on high-end products like LNG carriers," Kyobo's Song said in a Feb. 24 interview.

“China's yards are coming from a fairly low productivity base."

China didn't deliver its first VLCC until 2003, which was built at Dalian New Shipyard in northeast China for the National Iranian Tanker Co. Four VLCC orders were placed at Changxing last week by a Chinese tanker owner, shipbrokers said.

China's increase in shipbuilding capacity is driven by its need for imported commodities including oil and iron ore and its surging exports of electronics, clothes and other manufactured goods, carried on container ships.

China Shipping Container Lines Co. and China Ocean Shipping (Group) Co., the country's two biggest shipowners, said on Feb. 27 they carried 16 percent more cargo boxes in 2005 than a year before as exports to the U.S. and Europe increased. (Bloomberg)

2006.03.02

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