Construction Companies' Overseas Plant Orders Plummet by Half in Q2...

Impact of COVID-19 Intensifies in Q2
Two Major Construction Firms Record Zero Orders This Year
Market Conditions Worsen Due to Oil Price Plunge
Cases of Existing Project Cancellations
Industry Faces Large-Scale Restructuring Concerns

[Asia Economy Reporter Donghyun Choi] As the COVID-19 pandemic prolongs, the overseas plant order market in the construction industry is facing a withering crisis. Due to the sharp decline in orders starting from the second quarter amid the COVID-19 impact, some major construction companies have confirmed that their related order amounts for this year are '0'. With concerns over prolonged market stagnation, rumors of large-scale restructuring are reportedly circulating within the industry.

According to major large construction companies and the Overseas Construction Association on the 23rd, the plant (industrial facility) order amount of domestic construction companies in the first half of this year recorded $9.5 billion (11.37 trillion KRW). On the surface, this is a 58% increase compared to $6 billion during the same period last year. However, the association explained that this is a base effect due to last year's total overseas order performance hitting a record low of $22.3 billion since 2006.

In particular, overseas plant orders sharply contracted starting in the second quarter. The plant order amount in the first quarter of this year was $6.7 billion, but in the second quarter, when the COVID-19 pandemic shock fully materialized, it shrank to $2.8 billion, about half of the $5 billion in the same period last year.

Domestic large construction companies, whose second-quarter performance announcements are imminent, appear extremely reluctant to disclose order amounts. According to Asia Economy's investigation into the plant order status of six major domestic construction companies this year, companies A and B had overseas plant order amounts of '0' since the beginning of this year. Both companies have a high proportion of overseas plants in their sales. Except for Daewoo E&C's order in May of about 2 trillion KRW for the Nigeria Liquefied Natural Gas (LNG) Train 7 design, procurement, and construction (EPC) project, the combined plant order amount of the six construction companies barely exceeds 1 trillion KRW. A representative from company C stated, "Due to the impact of COVID-19, many Middle East bids have been canceled or delayed," adding, "It is difficult to disclose specific performance."

Cases of cancellation of previously confirmed orders are also occurring one after another. Company A recently decided to withdraw from a $10 billion (about 12.06 trillion KRW) petrochemical complex development project in North America. This project was ordered by the company in 2018, with plans to start construction this year and begin commercial operation in 2026. However, due to the prolonged COVID-19 situation and the sharp drop in oil prices, market conditions worsened, leading to the eventual abandonment of the project. Additionally, in the Middle East, the main plant market including Kuwait and Saudi Arabia, postponements and cancellations of previously planned bidding orders are reportedly continuing.

As performance deteriorates, there are also concerns about the possibility of large-scale restructuring of related personnel. In fact, in one major construction company, there was reportedly a reprimand from management questioning, "Can plant personnel, numbering nearly 2,000, not generate even a single won?"

The industry views the prolonged contraction of the plant market as inevitable due to global economic uncertainties. In fact, the overseas plant market, which reached 80 trillion KRW in 2013, shrank to about a quarter of that size, 21 trillion KRW, last year. Due to the impact of COVID-19, the overall market is expected to shrink further this year. The Korea Construction Policy Research Institute recently revised down its annual overseas order forecast for domestic construction companies from $28 billion to $22 billion, a 21.4% reduction. Eunhyung Lee, a senior researcher at the Korea Construction Policy Research Institute, said, "Most of the overseas order performance in the first half of this year actually reflects pre-COVID-19 volumes," adding, "With numerous infection and death cases among domestic construction company employees on site, new orders are extremely difficult to secure."

This content was produced with the assistance of AI translation services.