TOKYO: Mitsui Engineering & Shipbuilding Co faces an urgent need to consider measures for survival after the cancellation of a planned merger with Kawasaki Heavy Industries Ltd.
Harsh business conditions for Japanese shipbuilders prompted the negotiations for a merger between the two firms. Mitsui, which was effectively left out in the cold by Kawasaki, relies heavily on its shipbuilding sector, which accounts for more than half of its total sales.
Partly due to poor sales performance in the sector, Mitsui’s consolidated after-tax balance as of March 2013 fell into the red for the first time in 11 years. The after-tax loss amounted to 8.2bn yen ($87m), and the company’s earnings have continued to be sluggish.
To confront the crisis, Mitsui had planned to gain advantages of scale and cut costs through a merger with Kawasaki. After the merger, Mitsui planned to strengthen its marine resource development sector, which is expected to grow in the future. The total backlog of ship orders in 2012 was 25.82 million tonnes, according to the Shipbuilders’ Association of Japan.
The backlog was about 40 percent of that in 2007. Contracts for new orders have been on the decline since the Lehman Brothers bankruptcy in autumn 2008. The nation’s global market share in shipbuilding in 2012 was only 18 percent. In 2004, Japan’s market share was nearly equal to South Korea’s. But since then, that figure has been halved. Chinese and South Korean shipbuilders began making moves to expand facilities and cut costs around 2003.
WP-Bloomberg
