HD Hyundai Heavy Industries is set to acquire Lee Young Industrial Machinery, a ship equipment manufacturer, marking a significant move in the shipbuilding industry. The acquisition, which closed on September 30, is reported to be in the hundreds of billions of won. This strategic decision comes as the shipbuilding sector experiences a resurgence but faces challenges in the supply chain of critical components.

Lee Young Industrial Machinery has posted losses for 11 consecutive years from 2013 to last year. Despite a surge in orders since 2022, the company has been forced to go through the sale process due to financial difficulties stemming from accumulated losses. The company specializes in producing the most challenging curved blocks, which are essential for constructing ships. Last year, Lee Young Industrial Machinery generated around 70 billion won (approximately $54 million) in revenue and has facilities capable of producing 20,000 tons of “mega blocks.”

The shipbuilding process involves assembling around 200 large blocks to construct a vessel. For instance, approximately 200 blocks are needed to build a 250-meter-long liquefied natural gas (LNG) carrier, of which 37.5% (75 blocks) are curved blocks. These curved blocks are more complex to manufacture than flat ones, making Lee Young Industrial Machinery’s expertise particularly valuable.

Due to a block supply shortage, major shipbuilders have turned to China for some of their block needs. HD Korea Shipbuilding & Offshore Engineering has been importing blocks for merchant ships from China since July. Hanwha Ocean has a subsidiary in China that manufactures blocks, and Samsung Heavy Industries is purchasing blocks through Chinese companies such as Hengli Heavy Industry.

An industry insider commented, “Although the shipbuilding boom has returned, the supply chain of partners such as equipment manufacturers is not as robust as it was during the previous boom.” This sentiment underscores the strategic importance of HD Hyundai Heavy Industries’ acquisition of Lee Young Industrial Machinery. By securing a stable supply of critical ship components, HD Hyundai Heavy Industries aims to increase the proportion of in-house block production, thereby mitigating the risks associated with supply chain disruptions and avoiding penalties for delayed deliveries.

The Newbuilding Price Index, which tracks the price of newly built ships, continues to rise. According to Clarkson Research, a shipbuilding and shipping market analysis firm, the Newbuilding Price Index reached 189.96 on the 27th, slightly up from 189.95 the previous week, approaching the all-time high of 191.6 in September 2008. The industry expects the index to surpass the previous high within this year, reflecting the increased demand and costs in the shipbuilding market.

As HD Hyundai Heavy Industries moves forward with the acquisition, the company is poised to strengthen its position in the competitive shipbuilding landscape. The acquisition of Lee Young Industrial Machinery not only secures a crucial supply of curved blocks but also positions HD Hyundai Heavy Industries to better capitalize on the current shipbuilding boom.

Source:Business Korea