A swell in the energy industry's demand for offshore facilities is buoying South Korea's world leading shipbuilders as they navigate a slowdown in their main business. The world's top three yards -- all South Korean -- expect to garner a combined $4.3 billion of offshore orders this year, about 15 percent of the global market and twice the orders they won in 2001. The market for offshore engineering is on a steep rise as fast depleting land energy reserves drive oil majors like ExxonMobil to increasingly explore untapped seabed.
As the focus has shifted to floating facilities from fixed ones, Korean shipbuilders have been able to move ahead of engineering companies like Aker (AMA) of Norway and Switzerland's ABB in tenders for offshore projects. What's more, oil majors are appointing Korean shipbuilders as their main contractors, letting them handle an offshore project from design to installation and test-runs.As a result, the proportion of offshore business for Korean shipbuilders will increase to about 30 percent in 2002 from 10 to 20 percent in 2001. While the offshore orders will offset the reduction in shipbuilding contracts, it won't fatten the bottom line much -- the Korean companies are focusing on expanding market share at the expense of earnings. Operating profit margins of Korean shipbuilders range from near zero for top ranking Hyundai Heavy Industries to about 10 percent.