Economic Turmoil Hits Booming South Korean Shipyards

The economic downturn has finally knocked a serious dent in the South Korean shipbuilding industry as Daewoo announces the cancellation of a US$514 million deal from a European client.

According to the Wall Street Journal, the Daewoo Shipbuilding & Marine Engineering Co. was forced to cancel the mega-order when the client couldn’t make the first scheduled payment.  The client had paid a deposit in June of 2008 at the contract signing for two VLCC’s and two bulk carriers, said a Daewoo spokesman.  The Daewoo spokesman declined to disclose the name of the client, but supposed that the euro-zone debt crisis was most likely to blame for the missed payment.

While this cancellation is the first for South Korea’s shipbuilding giants like Daewoo and Hyundai Heavy, they have already received requests to delay deliveries of 24 ships valued at approximately $3 billion.  The Seoul stock market shipbuilding subindex has also plunged 40% over the last six months, a considerable drop compared to the 10% drop in the S. Korean market overall. 

European economic crises have the shipbuilding industry on a string, with pressures mounting on the banks, operators, and shipbuilders alike.

All is not grim, though, for S. Korean shipbuilding.  In the midst of announcing the major cancellation, Daewoo said that they are also in talks with Brazil’s Petrobras for the construction of oil drilling facilities, aiming at clenching a portion of a potential 21 semi-submersible drilling rigs and drill ships projects.