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Korea Shipbuilding delivers dismal Q2 loss on higher steel plate prices

The company is widely expected to post improved earnings following a hefty one-time charge

By Jul 21, 2021 (Gmt+09:00)

Hyundai Heavy dockyard
Hyundai Heavy dockyard

Korea Shipbuilding & Offshore Engineering Co. (KSOE), a leading South Korean shipbuilder, on Wednesday posted a dismal quarterly operating loss after reflecting hefty one-time provisioning against a steep rise in steel plates for ships.

KSOE, the intermediate shipbuilding holding company of Hyundai Heavy Industries Group, reported it swung to an operating loss of 897.3 billion won ($777 million) in the three months to June on a consolidated basis, from a profit of 92.9 billion won a year ago.

The loss marks the largest shortfall since the company ran an operating loss of 897.6 billion won in the third quarter of 2015 when the shipbuilding industry was in a quandary.

The whopping operating loss in the second quarter came well below the market consensus of a 130 billion won loss.

Its consolidated revenue in the second quarter rose 3.1% on year to 3.8 trillion won on increased shipbuilding orders.

The company attributed the disappointing results to 896 billion won in one-time loss provisions against a sharp price hike in steel plates expected throughout this year.

“We’re expecting steel plate prices to range between 1 million won and 1.15 million won per ton in the second half. The worse-than-expected operating loss reflects this view of ours,” said a KSOE official.

The price of steel plates used in ships is already moving at an elevated level, hurting shipbuilders’ bottom-line while significant gains in shipbuilding order backlogs are reflected in earnings over years, according to industry watchers.

Crude oil carrier built by KSOE
Crude oil carrier built by KSOE


Following the second-quarter “Big Bath” or a huge one-time charge against future expenses, the company is widely expected to post improved earnings from the third quarter at the earliest.

Reflecting this market view, shares of KSOE finished up 4.5% at a two-week high of 128,000 won on Wednesday, outperforming the broader market’s 0.5% fall.

KSOE is the holding company of the group’s three units – Hyundai Heavy Industries Co., Hyundai Mipo Dockyard Co. and Hyundai Samho Heavy Industries Co.

The shipbuilding holding company has won new orders worth $15.2 billion so far this year, exceeding its 2021 order target of $14.9 billion.

The company said it has secured an order backlog worth two and a half years of work.

Steel products made at POSCO's Gwangyang steel mill
Steel products made at POSCO's Gwangyang steel mill


Korea’s three big shipyards are currently in negotiations with the country’s major steelmakers, including POSCO and Hyundai Steel Co., over the prices of steel plates to be supplied under contracts for the rest of the year.

According to industry officials, the steelmakers are demanding a 64% increase to 1.15 million won a ton for the second half, compared to the first half, citing higher prices of raw materials, including iron ore.

The steelmakers said further steel price hikes are overdue given that the local shipbuilders are enjoying a rally in ship orders with increasing cross-border cargo shipments.
The local shipbuilders, however, say that they are still struggling to recover from the pandemic-caused economic downturn and it normally takes a couple of years for the recent ship orders received to be reflected in their earnings.

Steel plates account for about a fifth of total shipbuilding costs.

Earlier this month, POSCO, the country’s top steelmaker, said its second-quarter operating profit soared to an all-time high of 2.2 trillion won on a consolidated basis on strong demand from automakers and shipbuilders.

Write to Kyung-Min Kang at

In-Soo Nam edited this article.

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