2016 Will Be Grim for Asian Ship Builders Due to Low Oil Price

2016 will be a bleak year for Korea's shipyard industries. Three of its world's biggest ship builders face low orders for offshore project and new vessel building. Other Asian shipbuilders also faces the same issues.

Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. are three largest shipbuilders in the world. Facing the new year of 2016, the Big Three will have to deal with another rough year as oil price is expected to fall as low as $15 a barrel. According to Bloomberg, the industry struggles with overcapacity and low rates.

Customers have also been pushing back delivery schedules or canceling orders outright, a trend likely to continue this year. Hyundai Heavy Industrues Chairman Choi Kil Seon sent a letter to inform its employees on December 31, "While most of the problematic projects are in the final stages of construction, there are still uncertainties," he wrote. "The drop in oil prices, interest rate increase in the U.S., slowing economic growth in China will mean restructuring for all industries."

Hyundai and Samsung Heavy Industries posted losses in the first nine months of 2015. While Daewoo Shipbuilding will have to record its biggest loss in 2015 due to order cancellations and delays in offshore drilling rigs delivery. However Daewoo expects a new rigs order from Iran, as the trade sanctions are now lifted.

GC Captain reported that Singaporean, Chinese and Japanese shipyard owners will also suffer losses in 2016. Singapore-based Sembcorp Marine, post the first loss since 2003, while Cosco Corp. Singapore Ltd. forecast a significant net loss in the same period. Cosco Corp, is owned by Chinese company and have foreseen some cancellation of bulk-carrier orders last year.

In Japan, a number of shipyards have already lowered its earning forecast to reflect losses in shipbuilding business as IHI Corp. in August has lowered its targeted net income for the year ending in March. The company, owner of one of the largest shipyard in Japan, indicated one of the reason for lower income is the increasing expenses in drill-ship project in Singapore. Another big shipyard owner in Japan, Mitsui Engineering & Shipbuilding Co. followed trait in October to cut its forecast.

Rig Zone reported that Asian offshore rig builders have taken measures to better position themselves for an eventual recovery in the global oil and gas industry. The big three of South Korean shipbuilders commenced a joint-industry project (JIP) to establish a new international standard for offshore oil and gas projects last July with Norwegian DNV GL.

The JIP was initiated with support from Korea Offshore and Shipbuilding Association and Korea Marine Equipment Research Institute. The project is open to oil companies and engineering firms.