UMIST Centre for Manufacture, Manchester, UK

　

　

A modern ship such as a tanker or bulk carrier is built from as many as 100,000 steel components which have to be cut to shape and fabricated. Most of these items are steel plate. A modern, double hulled ultra large crude carrier would use 35,000 tonnes of plate. Korean yards specialise in tankers and container ships which are particularly steel intensive. It follows that a competitive local supply of steel plate is a considerable advantage to a builder of tankers, bulk carriers or container ships.

　

Technical advances in shipbuilding have also placed a premium on plate quality. Recent adoption of laser cutting and welding mean there is an interaction between plate supply and shipyard productivity. South Korea (and Japan) are ahead of Europe in adoption of these fabrication techniques. Ultra wide plate also reduces the number of welds per hull. South Korea and Japan have more plate mills over 4 metre barrel length than any other location worldwide. So, new grades of large steel plate have helped Far Eastern yards to enjoy marked productivity advantages ahead of European rivals, especially in larger vessels.

　

Here we outline the growth in the Korean plate sector. This stands in marked contrast to a picture of declining plate output elsewhere. We consider the technical requirements of modern plate manufacture. Low cost and product innovation by Korean steelmakers have helped their shipbuilders achieve lower materials cost and higher productivity in cutting and fabrication. Close technical cooperation between shipbuilders and steelmakers has forced the pace of innovation in South Korea.

　

　

Steel prate for shipbuilding is made by rolling a heavy slab of steel backwards and forwards in a reversing plate mill. These mills are among the largest capital items in any manufacturing industry worldwide. Typical capital outlay for a new plant would be a third-of-a-billion US dollars. The mechanical forces involved require substantial civil engineering work to support huge items of machinery capable of withstanding tremendous forces at high temperature.

　

Plate mills require large buildings. The initial slab reheating furnaces, rolling mill stand and any associated cooling equipment occupy relatively little space. But, a wide range of downstream finishing equipment is required for processing the resulting plate, including levellers, shears, ultrasonic testing units, heat treatment and cooling lines, and finishing and painting lines.

　

　

The reversing mill plate sector has been declining worldwide. Thinner gauge, standard size plates are now produced more cheaply on hot strip mills. Thick coils are rolled and cut to length as light plate. Excellent gauge control and dimensional accuracy means strip of this sort can now be used for tube and pipe manufacture as well as high volume traditional items such as floor plate. In consequence the product range of heavy plate mills has shrunk. The traditional outlets for heavy plate have declined too: Ships have got bigger and world large-diameter pipeline demand has slowed.

　

There is acute excess capacity in the reversing mill plate sector, notably in Japan. Existing capacity is more than sufficient to meet world needs. In both Europe and Japan, reversing mill plate output has halved since 1970 (table 1). In contrast, world steel output has grown by a third over the same period.

　

　

There have been very few heavy plate mills built worldwide in the past decade. Among the few exceptions is SSAB of Sweden who have built a mill for a specialised niche market: quench and temper plate for products such as cranes and construction equipment. Otherwise South Korea has been the world centre of new plate mill construction.

　

　

Growth in shipbuilding, heavy engineering and construction have made South Korea one of the few growth centres for plate worldwide. South Korean plate output has grown from virtually nothing in 1970 to 4.6 million tonnes by 1999. South Korea has two major plate producers: Posco and Dongkuk Steel Mill. Both companies are located at Pohang, which has the largest geographical concentration of plate mill capacity in the world.

　

Dongkuk have recently installed and commissioned their second plate mill at Pohang. This two stand mill is of British design and manufacture and was bought "as new" from lspat

　

Mexicana, Sicartsa works, where it had been kept in packing cases pending delayed erection. The mill rolls plates up to 4 metres wide. Rival steelmaker Posco also has three major plate mills at Pohang. The newest mill was commissioned in 1997. The output of the three mills at Posco is currently running at around 3.2 million tonnes a year of finished plate, mostly for shipbuilding which implies all three mills are running close to their rated capacity. Both Posco no.2 and 3 plate mills roll plates of 4 metres width. (Their nearest rivals in terms of capacity are five huge wide plate mills in Japan NKK, Keihin; Nippon Steel, Oita; and Kawasaki, Mizushima 2; Kobe, Kakogawa; and Sumitomo, Kashima in Japan - but these mills have lower utilisation levels.)

　

Steelmakers elsewhere have been reluctant to build plate mills as wide as those found in the Far East. Wider mills have higher production capacity and yield providing they are fully utilised. But, capital costs rise disproportionately with mill width. Recurring costs such as roll use increase markedly with barrel length. It is also difficult to engineer wide mills suitable for modem thermomechanical controlled rolling of high strength plate. Cracks in mill housings were endemic in Japan in the 1980's. Yet the market for ultra-wide plate is limited to ships and large diameter welded pipe. So modern European mills, such as Thyssen Duisburg, Preussag Ilsenburg and SSAB Oxelosund built for the mechanical engineering market, produce narrower maximum plate widths.

　

　

Technical innovations in plate rolling worldwide have followed pressures from customers in capital goods industries, notably "yellow goods" (cranes and earthmoving equipment) and shipbuilding. These pressures followed earlier technical advances, such as on-line, accelerated cooling which arose from the need to carry sour gas or install pipelines in demanding locations such as Alaska and Siberia. Customer needs in a highly competititive sector have forced steelmakers to adopt major innovations in steel specification and rolling practice.

　

Some steelmakers have used innovation as a competitive strategy to maintain profitability in plate manufacture. Notable examples include Posco in Korea; Nippon Steel in Japan; and SSAB making quench and temper plate in Sweden. Other steelmakers have simply closed their mills and exiled from the sector (e.g. Hoogovens, Netherlands.) Usinor of France leased their ultra wide but underutilised Dunkirk plate mill to another steel firm - Dillinger Huette - one of the few firms in Europe able to roll wide plate.

　

Laser cutting and laser welding has been the most important processing innovation in shipbuilding over the past twenty five years. Lasers find universal application in steel fabrication, but so far the shipbuilding industry in the Far East has been the leading sector for their application. Arguably Japan are the technical leaders in use of lasers, followed closely by South Korea.

　

The benefit of lasers arises not just from the cutting and welding operations themselves, but also from the large cost savings to be made in the total manufacturing route where operations such as preheating prior to welding, or subsequent reworking are eliminated. Among the key advantages of laser cutting and welding are greater precision in dimensional control; accuracy in assembly; higher welding speeds; reduced weld distortion; cleaner working and the opportunity for automated production. Getting fabrication "right first time" brings particular productivity gains by avoiding reworking and rectification.

　

Laser welding has also brought new products. Laser welded sandwich panels use two light sheets welded to a core structure to replace stiffened thick plate, thereby reducing the weight of ship superstructures.

　

Fabrication processes such as laser cutting and welding put a premium on plate flatness, surface quality, mechanical properties and tight dimensional tolerance. Accurate cutting requires low residual stresses across the plate - an area where Japanese steelmakers lead. New metallurgical compositions have eliminated pro-heating prior to welding.

　

Laser welding has called for two improvements in steel specification: tighter restrictions especially on sulphur and phosphorous and new steels which meet toughness specifications on the weld zones of thicker sections. The crucial point is that faster welding calls for tighter specifications: Shipyard productivity is directly tied to the technical capabilities of plate suppliers. This feature is enshrined in classification society guidelines.

　

Mills such as those of Posco and Dongkuk are better placed to provide "laser friendly" steel plate for applications such as shipbuilding. Older plate mills have struggled to reach these modern specifications, especially in areas such as controlled rolling and in leveller technology. In turn, swifter cutting, more precise fabrication and better cosmetic appearance have improved the competitiveness of South Korean shipbuilding. There is a view in the European shipbuilding industry that the high quality and width of steel plate has a beneficial impact on East Asian shipbuilding performance.

　

Steel plate manufacture for laser cutting and welding is technically demanding as it requires a peculiar combination of liquid steel treatment and alloying; clever in line rolling and advances in cooling and finishing. So, for example, extremely tight control is called for on sulphur and phosphorous to ensure crack free welds at high welding speeds, (plus low carbon levels which is easier). This sector of shipbuilding plate is dominated by Posco of South Korea who have devoted considerable R&D to steel plate suitable for laser cutting and welding. This process knowledge is tightly held by the successful plate manufacturers. Different manufacturers use slightly different process routes.

　

　

The South Korean steel industry is also one of the world's most cost competitive steel producers (Table 2). This advantage reflects cheap imported raw materials (apart from scrap), good labour productivity coupled with employment costs per hour half those of the UK, and outstanding plant performance from excellent equipment. Korean plants have pursued higher yield than their competitors, resulting in more saleable plate from a given amount of raw material. One key breakthrough here is rolling of rectangular plates which are close to the final shape and so reduce trimming losses. For example, the attached edging stands on Poscds no.3 plate mill help with rolling ''trim-free-plate''. These plates are rectangular when they leave the mill stand and can be simply trimmed without yield loss.

　

Table 3 shows the costs of cold rolled strip production rather than plate, but the level and structure of costs are very similar for these two flat products. They have identical production routes up to the rolling stage. Cold rolled coil is a benchmark product for comparing costs.

　

Table 3 shows export prices for steel plate, taken from World Steel Statistics, Iron and Steel Statistics Bureau, Croydon and London, various dates, latest March 2001. It is not clear what grade of steel pale these statistics relate to, and in particular whether they relate to shipbuilding palte. However, they give a good indication of comparative price levels between Korea. Japan and Germany.

　

Broadly, as of April 2000, South Korea was one of the world's lowest cost producers for flat products with costs per tonne below those for equivalent European producers. Indeed, their costs are only rivalled by poorer quality material from Mexico or by steel from the CIS where accounting practices make cost comparisons difficult. Brazil is also a significant low cost plate producer but does not face the same demanding quality standards. Dongkuk buys in slabs from Mexico and Brazil for ordinary grades of plate and purchases higher grade stabs from Japan.

　

　

To sum up, South Korea is currently the world's lowest cost location for high quality reversing mill plate. Their quality standards are on a par with those of Japan in the demanding market for shipbuilding plate suitable for automated cutting and fabrication. Their new mills make very wide 4 metre plate which reduces fabrication costs, especially on larger vessels.

　

As Niels Roed, Senior Vice President of Odense Steelshipyard in Denmark has said:

　

　

European shipyards have used laser techniques to a limited extent for warships and cruiseships (e.g. Kvaerner Masa Yards at Turku). European steelmakers have developed suitable plate for laser cutting and welding. Rautaruukki Oy at Raahe in Finland make "RAEX Laser" plates for the offshore and construction markets.

　

But South Korean yards have used high productivity fabrication techniques on a much larger scale to make oil tankers and container ships using a reliable supply of low cost, very high quality steel plate. So rapid product innovation in the local steel industry has made a key contribution to reducing shipbuilding costs in South Korea. Investment in wide plate mills has also enhanced shipyard productivity.

　

The competitive solution for European shipyards is to be found in rapid adoption of the new cutting and fabrication techniques and close collaboration with European steelmakers on developing high volume production of plate grades suitable for laser cutting and welding. Coupled with automation, this should bring higher productivity in shipbuilding operations and less reworking.

　

Jonathan Aylen

　

March 2001

　

Jonathan Aylen is Senior Lecturer in Techno Economic Analysis at the newly established Centre for Manufacturing at UMIST, Manchester, England. He was educated at the Universities of Sussex and Oxford. Jonathan has also spent time as a merchant seaman. He won a national Partnership Award for innovative teaching in recognition of case study work which took students out into industry as part of their degree course.

　

Jonathan has travelled throughout the steel industries of Europe, Japan and North America and advised a number of international agencies on steel and on trade issues, including OECD, the ILO and UN. He has seen plate mills in operation worldwide. Jonathan's published papers in economics cover a range of topics including cost-benefit analysis; innovation; international comparisons of performance; privatisation; choice of technique in steelmaking; and forecasting. He has contributed to various international steelmaking conferences and was a keynote speaker at the European Oxygen Steelmaking Conference in October 2000. He is joint editor of a recent book The Steel Industry in the New Millennium published by the Institute of Materials. He is currently organising a major international conference on the history of rolling to take place in Manchester in April 2001.

　

　

The Filton Hemiksem yard is still involved with merchant ship construction having delivered two small container vessels during 2000.

　

　

On the face of it there has been major reduction in Danish shipbuilding with the problems that have beset the Danyard and Aarhus Yards over recent years. However the closure of Danyard has resulted in the facilities of the Frederikhavn yard being leased to nearby Orskov Shipyard and the Aalborg yard being sold to a management team together with Aalborg industries. The Svendborg Shipyard bought the Aarhus Flydedok yard following its bankruptcy in 1999. It would seem therefore that the capacity is still there, albeit that it may be in limited shipbuilding production at the present time.

　

　

Whilst Finland has no recorded capacity according to OECD sources, it has both Aker Finnyards and Masa Yards involved with newbuilding [any other yards]. The recorded output based upon AWES statistics has averaged 302,000 cgt per annum over the period 1996 - 1999.

　

Masa Yards has recently invested in improvements to its production facilities at both the Helsinki and Turku yards. The developments at the Helsinki yard include raising the height of the building dock to allow the larger Panamax Max cruise ships to be built and increased dock cranage capacity to help reduce build cycle times. Other facility and organisational improvements are expected to lead to increased productivity and competitiveness. Such enhancements are likely therefore to increase the capacity of the Masa Yard facilities.

　

The current and forward orderbook at Aker Finnyards is showing a shift towards cruise ship and passenger vessels. This change in product mix may be accompanied by an increase in CGT output as competitive build cycle times are achieved, reflecting the higher value added vessels. Additionally the yard has undertaken some sub-contract hull construction for other yards, with the delivery of a supply vessel hull to Aker (Lansten Slip) in Norway at the end of 2000 and the current construction of hull sections for Meyer Werft in Germany. Such hull construction work does not generally reflect in the output capacity of the hull builder and as such the output and any related assessment of capacity might be understated.

　

　

Kvaerner Warnow Werft, following the breach of its EU imposed capacity limitations in 1997 and 1998 has moved part of its production into the offshore field, which will not be reflected in the shipbuilding output statistics. The capacity for merchant shipbuilding however has clearly not been reduced, merely diverted, presumably until such time as the capacity restrictions end.

　

Meyer Werft are investing in a new 150m covered building hall which will increase its future production capacity.

　

The OECD capacity figures for Germany show capacity unchanged since 1993, however during that time there have been a number of yard closures, which might have been expected to reduce capacity. These include:

　

　

Furthermore the reconstruction of the 4 former East German yards during the 1990s would have been expected to increase the capacity figures, even taking into account the EU imposed capacity limit.

　

The absence of any apparent capacity changes, in the light of above events raises some doubts about the accuracy and reliability of the capacity information for Germany.

　

　

OECD data has shown no shipbuilding capacity for Greece since 1994, however the Hellenic yard has recommenced commercial shipbuilding with the construction of two passenger ferries for a Greek owner.

　

　

The main changes in the Netherlands have involved reorganisation of capacity rather more than changes, most particularly the acquisition by Damen on the Royal Schelde yard which was previously state-owned. It is not clear how the OECD capacity rating categorises the shipbuilding capability of the Schelde yard, which has had a pivotal role as a naval builder but which also has delivered several merchant vessels over recent years.

　

　

The Viano do Castelo yard is still active in shipbuilding having delivered a chemical tanker, container ships and multi-purpose cargo vessels over the last two years and with an orderbook including tankers.

　

　

Whilst the EU has imposed a cgt restriction on the publicly owned yards, this has not reduced the capacity of the yards, as there have been no closures of yards. The output of the AESA yards appears to have exceeded the 210,000 cgt limit since 1998 but this includes some offshore construction which if excluded drops the output below the limit. In terms of total output, the country is producing at a level higher than the OECD capacity figure and within this the private sector yards do not seem to have fully utilised the 170,000 cgt 'balance' between the EU state yard cap and the OECD rated capacity. From this we can infer that there is surplus capacity within the AESA yards, which is temporarily, limited by EU requirement but that is not being reduced on a permanent basis.

　

Privatisation plans seem to have been put on hold with the merger of the Bazan (naval) and AESA (merchant) yards into a single state-owned entity entitled IZAR. This is likely to further blur any division between merchant and naval capability from both capacity and subsidy perspectives. It is hard to project therefore whether there will be a transfer or effective transfer of capacity between the two.

　

　

After significant reductions in shipbuilding capacity during the 1990s, there has recently been emergence of shipbuilding at sites that were involved in repair and conversion work or that had been mothballed.

　

The Cammell Laird group have recommenced shipbuilding at their Tyne yard and hope to recommence shipbuilding at their Birkenhead yard. Swan Hunter yard on the Tyne has also recommenced shipbuilding operations at their Wallsend yard after a period of conversion and repair activity. The combined capacity of these two Tyne yards re-entering the shipbuilding market is likely to be in the region of 100.000 cgt. It is not however clear at this stage to what extent merchant shipbuilding activity will be undertaken rather than Ministry of Defence work, especially at Wallsend.

　

The Appledore Shipyard are understood to have plans to increase the size of their dock, however the Ailsa Troon Shipyard has recently gone into bankruptcy with the possibility that the site may be redeveloped for non-industrial purposes representing a capacity reduction of about 10,000 cgt. Harland & Wolff's recent decision to discontinue shiprepair activities allows the possibility that some of the dock capacity there may be available for shipbuilding activity.

　

The EU imposed restriction banning shipbuilding activity at the Pallion yard in Sunderland expired after its 10-year term in 1999. This capacity is therefore now available for commercial shipbuilding as well as fabrication, repair and conversion activity. The capacity of this yard is estimated at around 48,000 cgt.

　

The OECD capacity data shows UK capacity unchanged at 129,000 cgt since 1996, however in light of the above events an increase in Capacity would be expected. A recent study commissioned by the DTI estimated the UK merchant shipbuilding capacity at 425,000 cgt. This would represent a 220% increase over the latest OECD figure.

　

　

A number of the repair yards in Poland have begun to get involved with either ship or hull building in the mostly, latter half of the 1990s. Additionally some new smaller yards have emerged out of the privatisation / restructuring of the Polish shipbuilding industry. Examples of these trends include:

　

　

The Marynarki yard seen in this list was traditionally a naval shipyard, but has more recently undertaken some merchant vessel newbuilding activity. It seems unlikely that this newly emerged newbuilding capability from the shiprepair, naval and new yards has been included in current or future capacity projections.

　

Stocznia Szczecinska in Poland has also undertaken a capacity expansion programme. Since November 2000, the yard has expanded its capacity, so that it can now build vessels up to 100,000dwt.

　

Whilst a lot of attention focused around the bankruptcy of the Gdansk Shipyard, eventually this has been acquired by the Gdynia Yard, and is currently still active in newbuilding construction.

　

　

The OECD data for Japanese capacity indicates that it is calculated on a formula based upon dock capacity and as such may not reflect performance related or other production capacity influences. However as has been stated earlier, the actual output of the Japanese yards over recent years has been some 12.5% higher than the OECD figure.

　

In 1997 at least two Japanese shipyards, reopened drydock capability to deal with a surge in demand for newbuilding, particularly for VLCCs. In view of the approach taken by the Japanese in calculating capacity, it is not clear whether this was already included in the capacity figure or not. It does however seem to corroborate the fact that in practical terms capacity increased over recent years to support the increased construction workload.

　

The opening of the new VLCC dock at lmabari's new Saijo yard represents a significant increase in capacity.

　

Drewry Shipping Consultants is an independent London based consulting and publishing organisation specialising in shipping and related industries. All of its activities are confined to the economic analysis of shipping and associated businesses such as shipbuilding. Established in 1970, it has built a global reputation as a trusted advisor to the world's maritime community.

　

Drewry has absolutely no links to any form of shipowning or shipbroking. It therefore represents an objective voice in international shipping. Today it enjoys a reputation for the thoroughness and reliability of its work and the integrity of its relationships with its many clients across the globe

　

Drewry's consultancy services extend from the provision of data and information to large-scale assignments calling for a broad mix of disciplines. Typical commissions encompass such diverse remits as strategic planning, management consultancy, due diligence appraisals, feasibility studies and project evaluation.

　

Drewry has undertaken well over two thousand private Client consulting assignments since it was established. In the course of these projects the company has covered all of the major sectors of shipping, including shipbuilding. It has also covered the shipbuilding sector under its publishing operation

　

As part of its day-to-day activities Drewry monitors developments in the international shipbuilding market. This monitoring takes the form of recording and analysing changes in newbuilding capacity, newbuilding orders, newbuilding completions, newbuilding prices and costs and productivity.

　

Allied to this the company maintains vast data files, including a sophisticated fleet database containing the records of more than 70,000 ships.

　

The company employs specialists in most sectors of shipping and to undertake this project it has drawn on the services of individuals with experience of shipbuilding.

　

April 2001

　

　

Professor Silberston is Emeritus Professor of Economics in the University of London, and Senior Research Fellow in the Management School of the Imperial College of Science, Technology and Medicine, University of London.

　

After obtaining a first class economics degree at Cambridge Professor Silberston worked as an economist at Courtaulds Limited, before returning to Cambridge as a university lecturer in economics, a research fellow of St Catharine's College, and then a teaching fellow of St John's College, Cambridge. Following that he became official fellow and Dean of Nuffield College, Oxford, and then the founding professor of economics at Imperial College, London.

　

Professor Silberston has had wide industrial experience, having been a Board Member of the British Steel Corporation, a Member of the Monopolies Commission and of the Restrictive Practices Court, a member of two Royal Commissions, and an adviser to the Confederation of British Industry and the Bank of England.

　

He has published some 15 books and 70 articles. Currently he is a Vice President of the Royal Economic Society (formerly Secretary General), a Council Member of the Institute for Fiscal Studies, a Governor of the National Institute of Social and Economic Research, and a member of the Council of Experts of the Intellectual Property Institute, London.

　

Professor Silberston has had extensive experience of EU and WTO matters through his consultancy work. His position as head of the Brussels office of London Economics has enabled him to follow these areas especially closely. He has had close contact with several DG's of the European Commission, including DG Internal Market, DG Trade and DG Competition. Among other consultancy and academic work he has published numerous economic commentaries on WTO cases, for publication in the 'International Trade Law Review'.

　

April 2001