As shipbuilders recover, workers strike, occupying crane
Published: 08 Jul. 2021, 19:08
Korean shipbuilders are faring well as orders surge, but strikes and high costs may cap the rally.
The labor union of Hyundai Heavy Industries (HHI) went on a strike Tuesday, occupying a 40-meter (131.2 feet) turnover crane – a key piece of equipment for manufacturing ships– at the company’s Ulsan headquarters. The strike will continue until Friday.
HHI’s union has been in talks with the company for higher wages since May 2019, but went on a strike as they failed to reach an agreement. The strike is the first since June 2019 and the first takeover of the crane since 2004.
Although the shipbuilding industry flourished 20 years ago, with Korea being the No. 1 supplier in the world and shipbuilders being responsible for 10 percent of the country's exports, the industry began to slump due to the global economic crisis in 2008. Demand for offshore oil platforms dropped sharply in 2014 along with plummeting oil prices, and shipbuilders suffered even more.
The local industry has just recently started to recover due to increasing trade and oil prices, and companies are concerned that conflict with unions may be an obstacle.
According to shipping industry research firm Clarksons Research, global shipbuilders received orders for 4.15 million compensated gross tonnages (CGTs), or 131 ships, in June. Korea won 44 percent of the deals. China came second, with 38 percent, and Japan was next, with 7 percent.
During the January-June period, Korea won contracts to make 10.5 million CGTs, a 675.6 percent surge on year. Although Korea fell to second place during the period, short of China’s total contracts by 120,000 CGTs, many expect Korea to easily take the No. 1 spot in the second half as the difference is equivalent to building two 15,000 twenty-foot equivalent unit (TEU) container ships.
Although business is booming, companies are hesitant to comply with union demands as it takes time for orders to translate to actual cash flow.
“Business is improving, but considering building ships take one to two years on average, profits from the contract will begin to show from late next year at the earliest,” said a spokesperson for one of the local shipbuilding companies. “Since unions have endured sluggish business situations for a long time, it will be hard to work out the differences.”
Rising material costs is another setback. Ships currently under construction are for orders lodged two years ago. Order costs were calculated based on material costs at that time, and the rise in ship plate prices weighs down on possible profits.
Local steelmakers have upped the average price of ship plates to 1.3 million won ($1,130) per ton in July, up 97 percent on year. Price of ship plates – a steel panel used to build ship structures – increased by 100,000 won per ton during the first half of this year, and another price hike is expected in the latter half.
For the steelmakers, increase in iron ore prices is what made them raise the price tag. According to the Ministry of Trade, Industry and Energy, price of iron ore from China’s Qingdao port was $222.39 per ton as of July 7, up 115.9 percent on year.
“We refrained from price increases, as we understand the financial situation of the shipbuilding companies,” said a spokesperson for a local steelmaker. “But we are planning a price negotiation in the second half of 2021, taking production cost increase and other global standards into consideration.”
BY LEE TAE-HEE [[email protected]],CHOI HYUN-JU
with the Korea JoongAng Daily
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