Korean shipbuilders turn focus to high-value vessels

South Korean shipbuilders, brimming with heavy order backlogs, are turning their focus to high-value and eco-friendly vessels for new orders as the industry is expected to enjoy a buoyant order book through 2030.

The prices of new vessel orders placed with South Korean shipbuilders, led by Hyundai Heavy Industries Co., averaged $170 million last month, almost three times as much as the $60 million for Chinese shipyards during the same period.

Shipbuilding prices are expected to maintain their upward trend, driven by orders for container ships and eco-friendly vessels amid the booming shipping industry. Growing demand for oil and gas transportation will likely keep dockyards busy for the coming years as well, supported by higher fuel prices.

"As ship prices continue to rise and dockyard space remains scarce, shipping companies are in intense competition to secure slots on the docks for their new ships in advance," said a shipbuilding industry source. "We no longer take orders at below-market prices."

The increase in new vessel prices should shore up their profitability for years to come, eclipsing a combined 3 trillion won ($2.5 billion) in first-half losses reported by the country's Big Three shipbuilders to reflect the rise in steel plate prices.

The Big Three shipyards -- Korea Shipbuilding & Offshore Engineering Co. (KSOE), Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. -- have secured enough orders to keep operations in full swing until the first half of 2024. KSOE is the parent company of Hyundai Heavy, the world's largest shipbuilder.

Stricter environment regulations are creating new and replacement demand for eco-friendly ships that reduce carbon emissions, which are pricier than conventional vessels.

A shortage of dockyards, triggered by the industry-wide restructuring over the past few years, pulled ship prices further higher. 

A global index of average prices in newly built vessels has risen 19% since the start of the year to scrape its 12-year high last week, according to the industry tracker Clarkson Research Service. Clarkson Newbuilding Price Index jumped to 150.0 on Oct. 8, the highest level since July 2009.

New global shipbuilding orders placed this year surged 184% to 37.5 million compensated gross tonnage (CGT) as of the end of September from the previous year, according to Clarkson.

Now that the Big Three shipbuilders turned selective in taking new orders, their proportion of new ship orders placed globally in September declined to 28%, from the average 42% for the January-August period of this year.

In total, eco-friendly ships, including liquefied natural gas (LNG) carriers, accounted for 32% of new global ship orders placed in the first nine months to September of this year, up from 21.3% in the year-earlier period. Clarkson forecast their proportion to increase to 59% by 2030 and 100% by 2050, when the US, the European Union and other major economies aim to be cargo neutral.

"We expect that orders of new ships and offshore plants will pick up sharply, in line with the rising LNG and crude oil prices," said another shipbuilding industry source. "We are now drawing up next year's business plans, based on expectations of better business opportunities." 

Write to Jung-hwan Hwang at jung@hankyung.com
Yeonhee Kim edited this article.