Korean shipbuilding industry rebounds from near bottom

South Korea’s shipbuilding industry is slowly emerging from its rocky cycle of ups and down in recent years, thanks to a recovery in the global shipping industry. Although the shipbuilding industry is unlikely to experience a supercycle anytime soon, it also won't be hitting rock bottom, industry watchers say. 

The shipping industry, considered a leading indicator for the shipbuilding industry, has seen robust movement as of late. On Nov. 9, HMM Co., formerly known as Hyundai Merchant Marine, surged 16.10% to close at 11,900 won ($10.7). The company’s share price leaped over 30% this month alone, reaching a high peak since July 2016.

Bulk carrier Korea Line Corporation also reached its upper price limit of 2,115 won on Monday. The spike is driven by a recovery in global cargo volume. 

Further, the Shanghai Containerized Freight Index (SCFI), a barometer of global freight rates, soared to 1664.56, the highest figure since data aggregation began in 2009. Sea freight rates for American, European and Singapore routes have increased, resulting in hiked share prices of shipping companies.

“The shipping industry is being compensated for the past 10 years,” said Choi Go-woon, an analyst at Korea Investment & Securities Co. For many years, the shipping industry was wrestling with the aftermath of the 2016 "game of chicken," where companies such as the now-collapsed Hanjin Shipping Co Ltd could not compete against global rivals supported by their governments.

Companies had to bear losses if they operated ships, and they were busy getting rid of deteriorated ships given that eco-friendly ships were on the rise. However, this led to a shortage of ships to handle the volume of cargo goods, a phenomenon deemed as a short-term recession trade surplus by industry watchers.

ROSY OUTLOOK ON BIDEN WIN

But the tables have turned with Joe Biden winning the 2020 US Presidential Election, given hype surrounding Biden's stance on expanding multilateral trade alongside a possible resolution of the US and China trade dispute. This has raised a rosy outlook for the shipping industry anticipating a boost in cargo volumes.

The shipbuilding industry is seeing some movement following the lead of the shipping industry. Orders for global containers are expected to rise over 70% next year, grabbing the attention of investors. 

On Nov. 9, shipbuilding stocks rose, including Korea Shipbuilding & Offshore Engineering Co., which climbed 8.69% to close at 90,100 won. Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. also saw their share prices rise by 5.53% and 8.32%, respectively. Even shares of Hyundai Mipo Dockyard Co., not directly benefiting from the lack of containers, rose 13.09%.

The general view is that while a supercycle is unlikely in the near future, the shipbuilding industry has turned the corner and will enjoy a jump in new orders next year. Orders for containers and bulk carriers are likely to see a drastic rise at around 773 ships next year, about 30% more than this year’s estimated order of 585 ships, according to global shipping intelligence provider Clarksons Research. 

“Shipowners that delayed orders due to the global coronavirus pandemic have slowly begun placing orders in the fourth quarter,” said Choi Jin-myung, an analyst at NH Investment & Securities. “The shipping industry’s rebound is likely to be confirmed by indicators starting in the second quarter of next year.”

Write to Jae-won Park at wonderful@hankyung.com
Danbee Lee edited this article.