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‘Unfavorable factors’ clouding Hyundai Heavy

Hyundai Heavy Industries Group’s sub-holding company Korea Shipbuilding & Offshore Engineering (KSOE) has already fulfilled over 90 percent of its sales goal this year, but despite having an impressive backlog, the company is facing several unfavorable factors.

For the past two years, Hyundai Heavy has been embroiled in a union-management conflict over wage issues and from Tuesday began to suffer from a selective strike. In addition, the delay of the European Union’s review of its acquisition of Daewoo Shipbuilding and Marine Engineering (DSME) is also becoming problematic for the company, while the rise in steel sheet prices is set to cut the shipbuilder’s profitability.

According to the shipbuilding industry, the union at Hyundai heavy will strike from Tuesday through Friday this week for eight hours a day. The strike is being conducted as management and the union failed to narrow their differences over pending wage issues for 2019 and 2020. This marks the first full-on strike since the union established an executive branch in January last year.

“We have not concluded our negotiations for 2019. Management should be the ones to actively engage in talks but they are completely ignoring us,” the union wrote in a newsletter.

Hyundai Heavy’s management and union have been struggling to come to a consensus regarding wage hikes since May 2019. In both February and April, management submitted a proposal but it was rejected by the union, resulting in a stalemate. If the situation prolongs for an additional few months, they will have to add this year’s wages to the talks as well.

A few union leaders occupied a 40-meter-tall turnover crane at the company’s Ulsan headquarters, Tuesday, with hundreds of union members protesting in front of the crane.

“The union has occupied the crane and violated quarantine measures to fulfill their one-sided demands. We will make sure they are kept responsible for the illegal acts,” a Hyundai Heavy official said.

The strike is expected to lead to production losses. The company says it incurred a daily sales loss of 8.3 billion won during a strike in 2018, as the company had to pay a penalty to ship-owner clients for any delays.

The acquisition of DSME has also been delayed for two years. The EU’s Competition Commission has yet to resume its probe into the proposed $1.8 billion deal between the two firms, blaming the COVID-19 pandemic as the reason for the postponement. The commission suspended the audit three times last year in January, March and July.

The EU antitrust watchdog believes the acquisition will hinder market competition in the shipbuilding field for liquefied natural gas (LNG) and liquefied petrochemical gas (LPG) vessels, over concerns about a possible rise in ship prices that could hurt European companies’ competitiveness in the construction of cargo ships.

The deal needs regulatory approval from the EU and five countries ― Korea, China, Kazakhstan, Japan and Singapore. Kazakhstan, Singapore and China have already approved the deal, but the EU and Japan have yet to deliver their determinations.

As the decision is pending, calls are growing from local governments and the DSME union to withdraw the acquisition, as the shipbuilding industry is seeing a boom in recent years and DSME has been recording a profit for the last four consecutive years, which could aid in efforts to financially stabilize the struggling company.

A rise in steel sheet costs is also cutting into the company’s profitability as steel sheets account for over 20 percent of the total shipbuilding expenses.

The price of one ton of steel sheets rose 100,000 won to 850,000 won earlier this year, but this is expected to escalate further in the second half of the year as steel prices have been on a gradual rise, which will affect shipbuilders’ overall profitability.
Source: The Korea Times

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