# Korea may increase shipbuilding costs



## rushie (Jul 5, 2005)

Press release - 

_S. Korean shipbuilders may raise ship prices

South Korea's seven shipbuilders, makers of 38 percent of vessels delivered globally in 2005, said they may raise prices to take advantage of record orders and protect their profits from increasing steel costs.
Carriers of containers, oil and minerals may cost about 5 percent more this year, said Kang Soo Hyun, chief executive of Hyundai Samho Heavy Industries Co., a unit of the world's biggest shipbuilder, at a June 8 interview in Athens.

Higher prices protect shipbuilders' earnings from the Korean won's gains against the U.S. dollar and shield them from steel costs that have risen 70 percent since 2003. A third year of rising ship prices add to the costs of Taiwan's Evergreen Marine Corp. and other shipping lines which carry an estimated 90 percent of global trade.

"Shipyards now have the advantage over ship owners" because their order books are "filled for about three years while global trade continues to expand," said Choi Young Chul, an analyst at Tong Yang Merchant Bank in Seoul.

The price of a supertanker that can hold 2 million barrels of oil rose 4 percent to about US$125 million in December, the Korea Shipbuilders Association said, citing Clarkson Plc. The price of a vessel that can carry 3,500 20-foot containers increased 2.8 percent to US$54 million from last year. 

Hyundai Heavy Industries Co. and other South Korean shipbuilders received a record US$12 billion in new contracts in the first quarter as fleet owners rushed to order vessels before a United Nations rule came into effect in April banning single- hull ships by 2010.

South Korean shipyards had 38.5 percent of the world's back orders in the first quarter, enough to stay busy until 2009. Shipping lines putting in orders today will have to wait until 2010 for delivery as backlogs stand at a record 1,031 vessels.

"Available slots to build vessels for delivery in the first half of 2010 may be filled in the end of the third quarter this year," Hyundai Samho's Kang said.

Tankers built under the new U.N. rule need two layers of steel, or 9 percent more metal, to separate their cargo from the sea.

The price of steel, usually 18 percent of a vessel's construction cost, fell 4.6 percent to 620,000 won (US$644.6) a ton on May 1, according to Posco, the biggest supplier of the metal to South Korea's shipyards. Dongkuk Steel Mill Co. cut prices by 21 percent to 585,000 won in April.

"Although prices have fallen, it's still a burden," said Hanjin Heavy Industries & Construction Co.'s President Hong Soon Ick. "The pace at which steel price is falling is much slower than when it was raised."

A 30 percent rise in the price of steel cuts shipyards' operating profits by 4.5 percentage points on average. 

Shipyards are also trying to shield earnings from a stronger Korean won, which erodes the value of dollar-denominated ships when converted into the local currency. The won traded at an average of 964.29 per dollar this year, 5.3 percent more than last year's average of 1,015.10 won.

Hyundai Heavy shares fell as much as 3.7 percent to 103,000 won and traded at 106,000 won at 12:13 p.m. in Seoul. Daewoo Shipbuilding & Marine Engineering Co.'s shares gained as much as 1.9 percent to 26,500 won while Samsung Heavy Industries Co. shares rose as much as 3.3 percent to 21,800 won. The Bloomberg Asia Pacific Shipbuilding Index, which tracks eight companies, rose 16 percent this year. 

Freight rates have been under pressure since late last year because of a capacity glut as Hyundai Heavy and other global shipyards deliver record number of vessels this year and in 2007.

"There is still demand for container vessels as shipping lines are trying not to lose market share to competitors" while global trade is growing, said Daewoo Shipbuilding's Executive Vice President Ko Jae Ho.

Samsung Heavy, the world's third-largest shipbuilder, received a US$1.5 billion order for 14 container ships from three companies including Panama's Naviera Daniela SA and Greece's Danaos Shipping Co. on June 7. The order included so-called post- Panamax vessels that can transport more than 7,000 20-foot cargo boxes each.

Mediterranean Shipping Co., the world's second-largest container shipping line, may spend US$1.7 billion to buy 12 container ships from South Korea, TradeWinds said, citing unidentified people familiar with the deal. The order may include vessels that can carry up to 10,000 containers._

Hmmm....corner the market with low build tenders...encourage a backlog and put up your prices...good business acrumen.

Rushie


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