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IHI will source components overseas to combat strong yen

IHI will source components overseas to combat strong yen

Tokyo: IHI Corp., Japan's second-largest heavy-machinery maker, plans to increase imports of shipbuilding components to counter a stronger yen.

The company's IHI Marine United Inc. unit, which purchases "most" of its components from Japanese suppliers, plans to buy parts including pumps and motors from South Korea and other nations, said Shigemi Kurahara, the incoming president of the Tokyo-based subsidiary, without specifying volumes and potential suppliers.

IHI forecast a 64 percent decline in shipbuilding operating profit this fiscal year to 1 billion yen ($10 million) because of the stronger yen. The unit will review procurement to hedge currency risk and cut costs and will likely increase purchases from Korea, where quality improvements in vessels and parts have boosted demand from global shipping lines, Kurahara, 60, said.

"We need a business structure that's less affected by factors beyond our own control," Kurahara, who will take office at IHI Marine United in June, said yesterday in an interview with local media.

IHI assumes the yen will strengthen 7 percent to average 95 yen against the dollar for the year started April 1, reducing operating profit from ships by 3.6 billion yen.

The shipbuilding division accounted for 13 percent of IHI's Total revenue for the year ended March 31. The company started talks in April last year with JFE Holdings Inc., Japan's second- largest steelmaker, to combine their shipbuilding operations to contend with increased competition from South Korea and China.

IHI Marine United and merger partner Universal Shipbuilding Corp., 85 percent controlled by Tokyo-based JFE, needed more time to decide details including the merger ratio and synergies, Kurahara said, without providing a timeframe. Combined shipbuilding sales at IHI and JFE totaled 363.1 billion yen last fiscal year. [15/05/09]