Europe's debt crisis hits South Korea's shipyards
South Korea's major shipbuilders have received requests to delay deliveries of 24 ships worth some $3 billion as the debt crisis in Europe bites, raising fears about a repeat of the 2008 downturn that hit the industry globally, Reuters reports. South Korea is home to the world's biggest shipbuilders including Daewoo and Hyundai Heavy Industries and the stock market's shipbuilding subindex has slumped 40 percent over the past six months versus a 10 percent drop in the overall market.
In November alone, STX Offshore & Shipbuilding, the fifth-biggest by order value, agreed to delay mainly European deliveries of 11 ships worth 1.5 trillion won ($1.3 billion), according to regulatory filings.
"There could be more order delays as the business conditions are not expected to be good next year," said a spokesman for STX Group, a parent firm of the shipbuilder.
European banks, traditionally the top lenders to global shipping companies, have tightened credit lines as the region's sovereign debt crisis dries up financing.
Shipbuilders, many who have yet to recover from a glut of orders made before the 2008 financial crisis, have borne the brunt of these cuts as ship operators generally rely on long-term borrowing for funds.
Macquarie Securities estimates around 30 percent of global orders for dry bulk ships would be delayed this year and that figure is expected to peak at around 40 percent in 2012.
"Reduced corporate lending could lead to reduced orders," Daewoo Shipbuilding said in a recent regulatory filing.
"In the worst case scenario, the global shipbuilding industry could again be roped into the vicious cycle of reduced orders and requests for delaying deliveries, which the industry went through during the 2008 crisis."
FUNDING SQUEEZE
The South Korean shipbuilders are not the only ones being squeezed. In China, home to the world's largest industry by capacity, shipbuilders are struggling, with some smaller shipyards on the brink of bankruptcy as orders dry up amid the global economic uncertainty.
Even before the euro zone crisis deepened in recent months, Daewoo received requests to put off the delivery of 13 ships worth 1.6 trillion won from an Asian and an European customer .
Daewoo, Korea's second biggest shipbuilder, said the delays were not due to financing problems but clients were changing the type of vessels they had ordered to better cope with slowing global trade.
The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, has so far fallen 14 percent over the past year. During the 2008 global financial crisis, investors regarded the index as an indicator of demand for raw materials.
In November alone, STX Offshore & Shipbuilding, the fifth-biggest by order value, agreed to delay mainly European deliveries of 11 ships worth 1.5 trillion won ($1.3 billion), according to regulatory filings.
"There could be more order delays as the business conditions are not expected to be good next year," said a spokesman for STX Group, a parent firm of the shipbuilder.
European banks, traditionally the top lenders to global shipping companies, have tightened credit lines as the region's sovereign debt crisis dries up financing.
Shipbuilders, many who have yet to recover from a glut of orders made before the 2008 financial crisis, have borne the brunt of these cuts as ship operators generally rely on long-term borrowing for funds.
Macquarie Securities estimates around 30 percent of global orders for dry bulk ships would be delayed this year and that figure is expected to peak at around 40 percent in 2012.
"Reduced corporate lending could lead to reduced orders," Daewoo Shipbuilding said in a recent regulatory filing.
"In the worst case scenario, the global shipbuilding industry could again be roped into the vicious cycle of reduced orders and requests for delaying deliveries, which the industry went through during the 2008 crisis."
FUNDING SQUEEZE
The South Korean shipbuilders are not the only ones being squeezed. In China, home to the world's largest industry by capacity, shipbuilders are struggling, with some smaller shipyards on the brink of bankruptcy as orders dry up amid the global economic uncertainty.
Even before the euro zone crisis deepened in recent months, Daewoo received requests to put off the delivery of 13 ships worth 1.6 trillion won from an Asian and an European customer .
Daewoo, Korea's second biggest shipbuilder, said the delays were not due to financing problems but clients were changing the type of vessels they had ordered to better cope with slowing global trade.
The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, has so far fallen 14 percent over the past year. During the 2008 global financial crisis, investors regarded the index as an indicator of demand for raw materials.