Slumping Ship Prices
The price of new ships slumped in 2001 and 2002 after the Sept. 11 terrorist attacks in the U.S. raised concerns about maritime security.
Slow economic growth in the U.S. and Japan reduced trade and caused freight rates to drop, prompting many shipping companies to postpone orders for new vessels.
Operating profit for Hyundai Heavy, the world's largest shipbuilder, may have slumped 21 percent in the second quarter, according to Korea Investment's Song.
Net income in the second quarter may have risen because Hyundai Heavy last year took a one- time loss from its holdings of Hynix Semiconductor Inc., which reported a 2.1 trillion won loss in 2003.
Daewoo Shipbuilding, the world's second-largest shipbuilder, may say net income slumped to 64.3 billion won ($55.5 million), according to 13 analysts polled by Thomson Financial.
Shipuilders' earnings may also be hurt by losses on foreign exchange rates after the won strengthened against the U.S. dollar, analysts said.
The won has risen 2.6 percent against the dollar this year, reducing the value of orders, which are in U.S. dollars, when they're converted back into the local currency.
Samsung Heavy, the world's third-largest shipbuilder, will probably say it had net income of 28.4 billion won in the quarter, according to the average of nine analysts surveyed by Thomson. That's 8.6 percent less than last year.
Hanjin Heavy, South Korea's fifth-largest shipbuilder, may report a 13 percent drop in income to 12.7 billion won, an average of nine analysts said.
Hyundai Mipo Dockyard Co., a ship repair company that switched to making chemical vessels, may be the only shipbuilder to have increased its profit. Mipo's second-quarter net income may have tripled to 14.8 billion won, analysts said.
The Ulsan-based company makes smaller ships that take less time to complete, so its earnings this year will reflect income from orders it received in 2003, when prices started to pick up.
South Korean shipbuilders get 77 percent of their steel plates from only two of the nation's steel mills, which have raised their prices eight times since January.
Posco, South Korea's largest steelmaker, raised the price of steel plates used in ships 38 percent this year to 550,000 won a metric ton. Dongkuk Steel Mill Co., the country's third-largest steel mill and the only other maker of steel plates, increased its price to 715,000 won a metric ton, 70 percent more than January.
Posco provided 42 percent of steel plate used in the South Korea last year. Dongkuk supplied 35 percent and the rest was imported from Japan, China and other countries.
The spot price of hot-rolled steel imported by China, used as an Asian benchmark, rose 52 percent to $440 per metric ton in the past year, according to the Metal Bulletin. China used 36 percent of the world's steel last year.
Shipbuilders may face further price increases. Japanese steelmakers may raise the price for heavy plates to South Korea's shipbuilders to $600 a ton from $450 a ton, the South Korean newswire Yonhap News reported last month.
``Third-quarter profits may fall further,'' said Korea Investment's Song. ``They will only improve next year as they start to book more 2003 orders at higher prices.''
The price of a very large crude tanks, which can carry about 2 million barrels of oil used as a shipbuilding benchmark, rose 22 percent last year to $70 million, according to Clarkson's data.
South Korea shipbuilders won record orders of 16.75 million compensated gross tons, a measure of building time and human resources used per ton, more than double the contracts in 2002.
In the first six months of the year, contracts surged 16 percent to 9.06 million compensated gross tons as expanding economies of China and Japan bolstered demand for trade and shipping.
Almost 80 percent of global trade is transported by sea.
The demand prompted Neptune Orient Lines Ltd., Hanjin Shipping Co. and other Asian shipping lines to raise cargo rates on North America and Europe routes.
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