This year, the Korean shipbuilding industry is continuing to land orders. It is said that the shipbuilding industry which has suffered from an order cliff since 2016 is clearly making a recovery thanks to new orders. Some experts expect a recovery in Korean shipbuilders’ business performances after the second half of 2018.
Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering surpassed one trillion won in cumulative orders, respectively, this year. Hyundai Heavy Industries expects to reach 50% of its order target by the end of the first quarter. A green light was given to Korea’s three biggest shipbuilders with respect to reaching their goals for the year which are to secure orders and reach their order targets.
World shipping orders are also on the rise thanks to a global economic recovery and the reinforcement of environmental regulations, and rising oil prices so it is expected that worldwide order volume will exceed deliveries in three years.
Riding Out Order Cliff Difficulties
According to the shipbuilding industry on March 2, Daewoo Shipbuilding & Marine Engineering won orders for two large-large crude carriers (VLCCs) from a European shipping company for US$170 million on March 1. Daewoo Shipbuilding and Marine Engineering received orders for two liquefied natural gas (LNG) tankers and three VLCCs on February 27 and 28.
It was the first time in company history that Daewoo Shipbuilding & Marine Engineering succeeded in winning orders for three consecutive days. In particular, landing the orders are very meaningful in that the three shipbuilders placed orders with the Korean shipbuilder this time signed contracts with Daewoo Shipbuilding and Marine Engineering for the first time.
This year, Daewoo Shipbuilding and Marine Engineering won a total of 10 vessels worth about US$1.2 billion including four LNG tankers, five VLCCs and one special ship. Therefore, the shipbuilder reached 40 percent of its total orders of last year in two months.
“In the past three years, due to its poor financial structure, Daewoo Shipbuilding and Marine Engineering had to feel a sense of humiliation such as failing to participate in bids despite its excellent technology and production capacity,” said an official at Daewoo Shipbuilding and Marine Engineering. “Last year, we agreed on making an improvement to our financial structure with creditors. Landing the orders means that it began to take effect in earnest.”
Samsung Heavy Industries received orders for eight 8,000 TEU container ships from Asian shipowners on February 8. The orders account for 12% of the company’s order target (US$7.7 billion) for this year.
Along with these orders, Samsung Heavy Industries landed an order for one LNG tanker this year. An industry source said that Samsung Heavy Industries topped US$ 1 billion in total orders.
Samsung Heavy Industries expects orders to recover in the offshore plant market as well as the market of carriers such as LNG tankers and container ships. The company changed its order forecast for 2018 from US$7.7 billion to US$ 8.2 billion through a recent public disclosure, while judging that orders will increase thanks to an improvement in market conditions this year.
Hyundai Heavy Industries also won orders for a total of 15 units (US$1.1 billion) as of the end of January. The shipbuilder recently succeeded in winning an order for two VLCCs. The price is estimated at US$84 million a ship. Earlier, last month, Hyundai Heavy Industries won a contract to build three 84,000-cubic-meter LPG carriers for US$220 million with KOTC, a Kuwaiti state-owned shipping company.
There is growing anticipation for winning new orders as rumors are going around that overseas shipoweners will place container ships and LNG tankers with Hyundai Heavy Industries. Hyundai Heavy Industries expects to receive a total of 74 units (US$6 billion) by the end of March. Then the shipbuilder will reach 64 units, its total orders in 2016 the company suffered from a severe order drought, in just three months.
Hyundai Heavy Industries which set US$13.2 billion as its order target for this year will focus on winning more orders by developing the latest technology.
Shipbuilding Prices and Charter Fees on the Rise
Shipbuilding prices and charter rates are also on the rise, having a positive impact on the shipbuilding market. Clarkson’s new shipbuilding price index rose from 123 at the end of 2016 to 125 at the end of last year and 126 at the end of January of this year. The price index is an index of prices of newly built vessels. It is combined monthly ship prices with ship prices of January 1988 as 100. If the index rises, it means that vessel prices hike.
With reference to LNG carriers, charter fees are rising. The daily charter fee for an LNG tanker daily climbed from US$30,000 in April of last year to US$80,000 recently. In the industry, if this trend holds, Korean shipbuilders’ orders will soar 40% this year.
“An increase in charter fees means that the shipbuilding market is getting better because profits will go up if vessels are put into operation,” said an official of the shipbuilding industry. “It is true that shipbuilding orders have increased this year compared to the same period last year.”
However, a hike in steel plate prices in the steel industry is a burden on the shipbuilding industry. Steel plates are 6mm or more thick and account for 10% to 20% of ship manufacturing cost. As prices of raw materials such as iron ore rises, steel makers are pushing for a hike in steel plate prices against shipbuilders that are not financially strong yet.
In addition, contrary to expectations for increased orders, the credit rating industry has not changed its negative views on shipbuilders yet. Since 2014, credit rating agencies have steadily lowered the credit ratings of Korean shipbuilders (CCC0 for Daewoo Shipbuilding & Marine Engineering, BBB + for Samsung Heavy Industries, and A- for Hyundai Heavy Industries). Currently, an outlook on the shipbuilding industry is negative.
“A prospect for additional orders is bright this year due to signs of a recovery in the market and environment-friendly regulations,” said an official from the shipbuilding industry. “If prices of steel plates are raised, the shipbuilding industry will minimize damage by raising prices and stand a tough period of this year by securing as many orders as it can.”
Source: Business KoreaPrevious Next
There Is a Steady Growth in the Number of Indian Seafarers Employed: Dr. Malini V. Shankar, (IAS), Director General of Shipping
India Shipping and Offshore Summit