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Shipping & Shipbuilding

Korea’s big 3 shipbuilders aim to hike newbuilding prices

With enough order backlog to keep them busy for two-and-a-half years, they now focus on profitability

By Aug 02, 2021 (Gmt+09:00)

Hyundai Heavy dockyard
Hyundai Heavy dockyard

South Korea’s three major shipbuilders are looking to raise new shipbuilding prices to enhance their profitability following hefty second-quarter losses due to higher prices of steel plates for ships.

According to the shipbuilding industry on Monday, the “Big Three,” – Korea Shipbuilding & Offshore Engineering Co. (KSOE), Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. – are estimated to have posted a combined operating loss of 1.5 trillion won ($1.3 billion) in the second quarter.

KSOE, the intermediate shipbuilding holding company of Hyundai Heavy Industries Group, reported last month it swung to an operating loss of 897.3 billion won in the last quarter from a profit of 92.9 billion won a year ago after reflecting one-time provisioning against a steep rise in steel plates.

Samsung Heavy has also posted a quarterly operating loss of 437.9 billion won, citing similar reasons -- a loss that’s 300 billion won more than the market consensus.

Daewoo Shipbuilding has yet to report its second-quarter results but is widely expected to post at least 150 billion won in loss.

Samsung Heavy's LNG carrier
Samsung Heavy's LNG carrier

ENOUGH ORDERS TO KEEP THEM BUSY

The shipbuilders, however, expect their profits to improve in coming quarters as they have already secured enough orders to keep them busy throughout the year.

The Big Three received orders for a total of 245 vessels in the first half, close to 90% of their annual order target.

The three major shipbuilders’ order backlog currently stands at 587 ships worth two and a half years of work.

Now that they have secured enough orders, analysts say the Korean shipbuilders will move to raise their new shipbuilding prices to help improve their profitability.

“It is necessary to raise newbuilding prices to offset the rising steel plate prices,” said an official at a local shipbuilder. “Given the high volume in the backlog, shipbuilders can negotiate from a position of strength.”

Separately, 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, steelmakers are demanding a 64% increase from the first half, to bring the selling price to 1.15 million won a ton for the second half, citing higher prices of raw materials, including iron ore.

Daewoo Shipbuilding's duel-fuel powered VLCC
Daewoo Shipbuilding's duel-fuel powered VLCC

NEWBUILDING PRICES ON RISE

New shipbuilding prices are already on an uptrend.

Data from global market researcher Clarkson Research Service showed the Clarkson Newbuilding Price Index rose to the seven-year high of 142 points in the final week of July, up 12% from the start of this year.

Newbuilding prices, which had been on an uptrend since 2016, significantly fell last year due to the fallout of the COVID-19 pandemic, and are staging a rebound on the back of rising new orders.

Shipbuilders are also seeking to get orders for more expensive ships such as LNG carriers. In the relatively low-priced tanker and container ship market, the Korean companies have to compete with Chinese rivals, which usually offer lower pricing.

“The construction of an LNG carrier is now priced at an average of $200 million and the price is rising. We’re also looking forward to big projects, including the LNG carrier orders from Qatar, scheduled for the second half,” said an official at a local shipbuilder.

Write to Jung-hwan Hwang at jung@hankyung.com

In-Soo Nam edited this article.

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