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Offshore plants weigh on shipbuilders

The top three Korean shipbuilders are sinking deeper into the red with their offshore plant businesses losing money.

Daewoo Shipbuilding & Marine Engineering, Samsung Heavy Industries and Hyundai Heavy Industries are facing losses of trillions of won for the second quarter due to floundering offshore plant projects, according to industry reports.

The big three shipbuilders actively expanded the business in 2011 when the global shipping industry saw a steep fall in demand after the global financial crisis. But the cutthroat competition in the market has led to low profitability, according to market watchers.

Front view of DSME building. (Yonhap)
Front view of DSME building. (Yonhap)


“Local shipbuilding companies have lowered prices of offshore plant projects to win more deals and offset losses from the shipping industry,” a credit analyst from Daewoo Securities said.

“Low-priced orders mean low profitability. This was already expected from last year,” he said.

DSME, which is expected to post operating losses of up to 3 trillion won ($2.6 billion) in the second quarter, is accused of attempting to hide accumulated losses of 2 trillion won in the offshore plant business.

The amount of DSME’s unclaimed construction receivable also recorded 9.4 trillion won as of March, dealing another blow to the company that is already reeling from weak orders.

Samsung Heavy is also expected to post about 1 trillion won in losses, of which offshore plant business accounts for a significant portion.

According to reports, Samsung’s central processing facility project off Australia’s northwestern coast and a floating production storage and offloading deal in Nigeria led to 750 billion won in losses in the first quarter, with the amount growing after delivery delays.

Hyundai is also said to have posted 380 billion won in losses from offshore plant businesses, including a $2.06 billion deal to build core parts of Australia’s Gorgon LNG project.

Hyundai Heavy recorded about 3.25 trillion won in operating losses last year from changing plant designs and construction delays. Analysts said the second quarter losses wouldn’t be as high as last year, but it would still struggle from deficits in six consecutive quarters.

Adding to their distress, global demand in offshore plant projects has been seeing a rapid fall since last year, hit by tumbling oil prices.

Of the three major shipbuilders, only Samsung Heavy inked an offshore plant deal in the first quarter. The company said it signed a 1.17 trillion won deal to build two offshore platforms from Norway-based Statoil ASA.

By Suk Gee-hyun (monicasuk@heraldcorp.com)
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