GULF OFFSHORE 2002
June 5 & 6, 2002
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Biloxi, MS

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April 30, 2002

EC says Koreans still underpricing ships
There has been no improvement in the market and no change in the behaviour of South Korean yards, says the fifth European Commission report on world shipbuilding

The report charges that certain South Korean yards are still pricing ships below cost. It finds that world ship prices are still being depressed by excess supply, due to past expansion of yards mainly in Korea. New orders did reach an historic high in 2000, bringing a brief price recovery, but then sank substantially in 2001, taking prices with them, in the wake of U.S. recession and the effects of the September 11 terrorist attacks on demand for sea trade and cruises respectively. Declining orders for containerships and cruise ships cut the market shares of both Korea and the EU, which are particularly strong in these segments.

This fifth report confirms earlier findings that this world market suffers from a serious imbalance of supply and demand, leading to very low prices offered mainly by Korean yards in most market segments. In some cases, the resulting losses have been offset by financial restructuring which, in the view of the Commission, is not in line with the relevant World Trade Organization (WTO) rules.

The only increase in absolute order volume last year was in the (niche) market for liquified natural gas carriers (LNG). Korean yards took 79% of new LNG carrier orders in 2001, even though they have no patents on the requisite key technologies. Market analysis suggests they gained their LNG market share (now 65% of the world order book), through very low offer prices and their ability to supply large numbers of vessels at an early delivery date.

Detailed cost investigations by the Commission show that some Korean yards are still pricing ships below cost, and that most managed to show a profit for 2001, thanks to high sales volumes, advance payments, and one-off measures to improve their financial position.

South Korean yards remain a major player in the world market, despite a small decline in their market share of new orders (from 36% in 2000 down to 30% in 2001).
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