Kawasaki to Build LNG Tankers in China to Take on Koreans

Jun 24, 2014 8:52 pm ET

(Updates to add share price in sixth paragraph.)

June 25 (Bloomberg) -- Japanese shipbuilder Kawasaki Heavy Industries Ltd. plans to construct gas carriers abroad as it strives to lower costs and take market share from Korean rivals.

At present currency levels, the company’s Chinese ventures are more cost competitive than Korean shipyards, Akio Murakami, head of Kawasaki Heavy’s shipbuilding and offshore division, said in an interview in Tokyo.

“Our Chinese venture, Nacks, has built a variety of vessels so far, and LNG and LPG carriers are the only area that has yet to be handled,” Murakami said in the June 13 interview, referring to liquefied natural gas and petroleum gas. “Once we get the first contract and deliver a good vessel, many orders will follow.”

Kawasaki Heavy, based in the western port city of Kobe, estimates costs at its Chinese facilities are as much as 20 percent lower than at Korean yards, Murakami said.

The company gained a foothold in China in 1995 by forming a venture with China Ocean Shipping Group Co. in Nantong on the outskirts of Shanghai. While the venture builds large-sized bulkers and very large crude carriers, the company constructs liquefied natural gas carriers only at its yard in Sakaide on the southern Japanese island of Shikoku.

Kawasaki Heavy fell 3 yen, or 0.8 percent, to 391 yen as of 9:48 a.m. in Tokyo trading, paring its gain in the past 12 months to 28 percent.

Shale Gas

Kawasaki’s push reflects the broader challenge facing Japanese shipbuilders to win back contracts from Korean rivals currently controlling about 80 percent of the market for LNG vessels. In the midst of Japan’s needs for cheaper energy after the 2011 Fukushima nuclear accident, Kawasaki and other domestic shipbuilders are counting on upcoming contracts for gas carriers used to ship gas from U.S. shale projects.

Japan’s four major shipbuilders including Kawasaki have together bid to build vessels that will carry LNG from the Cameron terminal in the U.S. state of Louisiana when shipments begin in 2017, Murakami said. Mitsui & Co. plans to secure 10 LNG tankers for the project, he said. More talks on orders for some other U.S. shale gas projects will start as soon as this year.

The yen has weakened 15 percent since the end of 2012, the most among Group of 10 currencies. Shipyards in Japan now have a more equal footing against Korean rivals after seeing contracts go elsewhere when the yen was stronger, Murakami said.

Kawasaki, whose origin as a shipyard dates to 1878, got six percent of its sales from its ship and ocean unit in the year ended March 31. It has diversified operations to areas including high-speed trains and fuselage parts for Boeing Co.’s 787s to Ninja motorcycles.

The company came under the spotlight a year ago when it ousted its president and said it scrapped merger talks with Mitsui Engineering & Shipbuilding Co. Murakami said the company won’t reject a merger that can create synergies but that growing bigger in its domestic market isn’t the only goal.

“At the moment, we intend to work with other companies on any win-win projects without leading to M&A,” he said.