STX Expects Offshore Orders To Improve From 2Q

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May 2, 2011

DALIAN, China (Dow Jones)–STX Group, a South Korean conglomerate, will catch up with its bigger rivals in offshore facility orders from the second quarter as it has some clients who put a more focus on quality than price competitiveness, the group’s holding company president said late Friday.

“We expect some deals coming to be signed with clients more concerned about product quality in a win-win strategy though China’s participation in the offshore facility market is escalating worries that it may result in lower contract prices,” STX Corp. (011810.SE) President Choo Sung-yob told Dow Jones Newswires in an interview.

The group’s shipbuilding units in Jinhae, South Korea, and Dalian, China, have enough capacity to build ships through 2013 as its three bigger rivals–Hyundai Heavy Industries (009540.SE), Samsung Heavy Industries (010140.SE) and Daewoo Shipbuilding & Marine Engineering (042660.SE)–have already filled some of their capacity, said Choo.

Analysts said the Big 3 shipbuilders are expected to wait for the time being until higher shipbuilding plate prices are reflected in new vessel prices. “During the time, STX Offshore has a chance to receive orders from shippers who choose to place orders before vessel prices rise,” said Park Moo-hyun of E*Trade Securities.

Over concerns of narrowed margins due to higher input costs, Park said if STX Offshore transfers less value-added ship orders to the Dalian shipyard from the Jinhae shipyard, it will likely to guarantee some margins for the company under its three-pillar production system.

“At stake for now is how fast productivity will improve in the Dalian shipyard,” said Park, adding given that STX Dalian delivered eight ships in the first quarter compared to four to five a year earlier, productivity improvement is picking up speed.

STX Group said it plans to produce high-end ships such as large container carriers in Jinhae, less value-added ships such as bulkers in Dalian and luxury cruise ships in Europe.

In the first quarter ended March 31, STX Offshore & Shipbuilding Co. (067250.SE), a shipbuilding affiliate of the country’s 12th-largest conglomerate by assets, didn’t get a single order for offshore facilities such as floating storage units and offshore plants. STX Offshore earlier set $1.5 billion in its offshore facility order target for the year.

The world’s No. 4 shipbuilder by orders just received $330 million worth of commercial ship orders in the January-March period out of its annual order target of $5 billion in the Jinhae shipyard.

But analysts remained positive toward the shipyard’s order outlook in the coming three quarters.

“When it comes to offshore facilities, the size of (STX’s) ongoing projects may exceed the annual offshore target of $1.5 billion to reach $2 billion at the end of the year,” Park forecast.

China still has a long way to go in offshore facilities in terms of technology and in-time delivery compared to South Korean shipbuilders, Park said.

-By Kyong-Ae Choi, Dow Jones Newswires

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