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Shipbuilding industry

S.Korea maintains global lead in shipbuilding industry

Dec 27, 2020 (Gmt+09:00)

LNG carrier built by Samsung Heavy Industries
LNG carrier built by Samsung Heavy Industries


Thanks to winning the most orders this year, South Korea’s shipbuilding industry has solidified its lead in the global shipbuilding market for the third year in a row.

Recently Korean shipbuilders have been on a winning streak, securing lucrative contracts that point to the country's shipbuilding industry entering recovery mode after being hard hit by the COVID-19 crisis.

Over the past two months, the country's Big 3 shipbuilders – Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. – clinched around $11.3 billion worth of orders for 85 vessels, or 70% of the shipbuilding orders placed worldwide, according to industry sources on Dec. 27.

Up until Dec. 21, China was in the lead with orders totaling around 7.2 million compensated gross tonnage (CGT), while South Korea and Japan's order backlog stood at around 6.6 million CGT and 1.4 million CGT, respectively. However, since then, Korean shipbuilders have booked orders for 17 LNG vessels, amounting to 1.5 million CGT, overtaking China.


VLCC built by Hyundai Heavy Industries
VLCC built by Hyundai Heavy Industries


LARGE VESSELS HELP DOMESTIC SHIPBUILDING INDUSTRY

During the first half of this year, global shipbuilding orders fell to a historic low, spurring concerns over lack of employment and empty shipyards. Fortunately, the situation improved in the second half of the year when shipping companies resumed their shipbuilding orders, ushering in a string of hefty deals for domestic shipbuilders.

In particular, Korean shipbuilders ended the year on a high note thanks to sizeable orders placed for LNG carriers and Very Large Crude Carriers (VLCCs). The Big 3 bagged orders for 73%, or 46 LNG carriers, of the total orders for 63 tankers placed worldwide.

LNG carriers are valued at around 200 billion won ($186 million) per unit. They are highly profitable for shipyards but require high-level shipbuilding skills to make. Korean shipyards, with a depth of experience in building LNG carriers, have a competitive edge in the market.

Also, 42 VLCC orders were placed globally, with Korean shipbuilding companies accounting for 81% of the orders. A VLCC is valued at around $85 million per unit.
Container ship orders also rose owing to the boom in the shipping industry. This year, Korean shipbuilders secured orders for 18 Very Large Container Ships (VLCSs).


Container ship built by Daewoo Shipbuilding & Marine Engineering
Container ship built by Daewoo Shipbuilding & Marine Engineering


RISING CONCERNS OVER STEEL PLATE PRICE INCREASE

The domestic shipbuilding industry is apprehensive over the increased price of steel plates used for shipbuilding.

For several years, steel companies have avoided raising steel plate prices in consideration of the shipbuilding industry's woes. Since 2016, the price of shipbuilding steel plate has remained between 600,000 won ($545) and 700,000 won per ton, almost half the record-high 1.1 million won ($1,000) seen in 2008.

But domestic steel companies say that a price increase will be inevitable due to a sharp rise in the price of iron ore, a raw material used to create steel plates.

The price of iron ore surged by 41.9% over the past month and reached $176 per ton on Dec. 21, the highest since February 2013, due to reduced output from major exporters Australia and Brazil, which were affected by the global pandemic, according to the steel industry.

Some steel companies have already raised the price to reflect production costs. They plan to further hike the price next year since the soaring iron ore price has made the production cost too expensive relative to the steel plate price, industry sources say.

“We tried to minimize the price increase, but we've been losing hundreds of millions of dollars in the steel plate business,” said a steel industry official. “We can't afford to delay the price hike, especially when the shipbuilding industry has been bagging a flurry of orders," the official explained.

A fierce tug of war is expected between the steel industry and the shipbuilding industry since steel plate prices are negotiated every six months.

Meanwhile, the shipbuilding industry fears that increased prices may weaken its competitiveness in securing shipbuilding orders.

“Even if we sign a contract now, it takes two to three years to finish building a ship, so we don't receive the payment right away,” said a shipbuilding industry official, adding that increased steel plate prices could hurt shipbuilders' finances.


Write to Man-su Choe at bepop@hankyung.com

Danbee Lee edited this article.

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