Korean Shipbuilders Suffer Big Drop in Order Intake

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Korean shipbuilders’ order intake almost halved this year compared with a year ago due to a sharp drop in international oil prices and the COVID-19 pandemic. In particular, demand for LNG carriers, a major cash cow item for Korean shipbuilders, also plunged.

As of the end of October 2020, Korean shipbuilders received orders for a total of 107 vessels, a 38.9 percent drop from 175 in the same period a year earlier. Globally, order placements totaled 511 vessels in the first 10 months of 2020, a sharp plunge from 981 a year earlier. Orders for LNG carriers worldwide dropped 38.4 percent compared to the same period a year earlier as of September 2020.

Korean shipbuilders expected a boom in the LNG carrier market, but the boom did not arrive due to delays in major projects and an unexpected good fight by Chinese shipbuilders. A sharp drop in international oil prices and increased volatility led to the postponement and cancellations of major marine projects.

Prices of new-build ships are also on the decline. The Clarkson Newbuilding Price Index has been on the decline since it hit 130.88 points in June 2019. At the moment, it stays at 125.64 points. Clarkson expects the index to stay between 125 and 130 points in 2021. Order placements for LNG carriers have been steady, but shipbuilders suffer a delay in reflecting construction progress in their balance sheets due to the delay of most projects.

The delay in LNG projects is attributed to a decrease in the merit of natural gas due to a drop in international oil prices and a downturn in overall investment amount, including investment in LNG.

However, industry experts predict that demand for eco-friendly ships will remain steady in the mid- to long-term, although LNG projects have been suspended in the short term.

Korean shipbuilders are in different situations depending on the company, although they are commonly affected by the spread of the COVID-19 virus. Korea Shipbuilding & Marine Offshore Engineering is in a relatively advantageous situation due to its relatively low dependence on offshore plants. Samsung Heavy Industries is likely to face a slump in its performance in the second half of 2021 due to a delay in new orders in 2020. A relatively high dependence on offshore plants could hurt the company.

Source: Business Korea

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