- Concerns over hindering engine competition due to difficulties in procuring engine parts for competitors like Hanwha Engine.
- Imposition of conditions such as prohibition of supply refusal, price increases, etc., to ensure stable supply of engine parts.
- Laying the foundation for fair competition in the domestic shipbuilding ecosystem.
The Korea Fair Trade Commission (Chairman Ki-Jeong Han) has decided on a conditional approval for the merger in which HD Hyundai Heavy Industries Co., Ltd. acquires 35.05% of STX Heavy Industries Co., Ltd. (hereinafter referred to as “Co., Ltd.”, etc.). The conditional approval includes corrective measures to address concerns about potential restrictions on competition in the domestic marine engine market.
The conditions for approval include the prohibition of supply refusal, guaranteeing minimum quantities, restricting price increases, and prohibiting delivery delays for marine engine parts (CS) for three years.
This merger involves HD Hyundai, a vertically integrated corporate group encompassing shipbuilding, marine engines, and engine parts (CS), acquiring STX Heavy Industries, a company engaged in marine engines and engine parts (CS).
Key Components and Concerns
- Engine Parts: Crankshaft (CS):
- The crankshaft is a crucial component of marine engines, converting the piston's vertical motion into rotational motion to operate the propeller, thus determining the engine's quality.
- Potential Competition Restrictions:
- The Fair Trade Commission focused on the concerns of vertical integration between engine parts (CS) and marine engines. The merger could lead to realistic concerns where Hanwha Engine and STX Engine might face difficulties in producing engines due to the potential refusal of crankshaft supply by the merged entity.
- Specifically, if STX Heavy Industries becomes an affiliate of HD Hyundai Heavy Industries, and Hanwha Engine faces production difficulties, its demand would shift entirely to the competitor (the merged entity). Thus, KMCS (a key supplier) would have increased incentives to refuse supplying crankshafts to Hanwha Engine.
- Supply Constraints:
- Hanwha Engine's main supplier, Doosan Enerbility, is operating at full capacity and has limited ability to increase crankshaft production due to the rising demand for nuclear power plant main equipment produced in the same factory.
- Chinese crankshafts are not a viable alternative due to concerns about quality, transportation costs, and delivery reliability. HD Hyundai Heavy Industries does not sell crankshafts externally, making KMCS the only alternative supplier for Hanwha Engine.
- Market Dynamics:
- Post-merger, if KMCS refuses to supply or supplies crankshafts at disadvantageous prices or delivery terms to competitors, it could significantly hinder their engine production, thereby strengthening the merged entity’s dominant market position.
- Hanwha, having entered the shipbuilding industry by acquiring Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean) in 2023 and HSD Engine (now Hanwha Engine) in 2024, becomes a significant competitor to HD Hyundai Heavy Industries in shipbuilding and marine engine manufacturing.
- Fair Competition:
- Given the competitive landscape, difficulties in Hanwha’s procurement of crankshafts could impair fair competition in the marine engine and broader shipbuilding markets.
- Therefore, the Fair Trade Commission has imposed conditions to ensure stable crankshaft supply for competitors for three years, with provisions to extend this period if necessary based on market conditions.
Approval Process and Considerations
- The Fair Trade Commission’s review involved consultations with various stakeholders, including shipowners, shipbuilders, engine manufacturers, and crankshaft manufacturers, incorporating diverse opinions and expert advice from institutions like Korea Maritime University, Korean Register of Shipping, and Korea Marine Equipment Research Institute.
- The conditional approval allows the merging entities to pursue their goal of enhancing global competitiveness through investments in eco-friendly engines while ensuring minimal safeguards for competitors. This aims to maintain fair competition in the national shipbuilding and related intermediate goods markets, marking a significant step towards promoting a healthy industrial ecosystem.