Big 3 Korean shipbuilders set to log quarterly profits

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South Korea’s three major shipbuilders are likely to log quarterly surplus for the July-September period and remain in the black for years, thanks to rises in newbuild ship prices, banking sources said.

It will be the first time that the “Big Three” companies, HD Korea Shipbuilding & Offshore Engineering Co. (KSOE), Hanwha Ocean Co. and Samsung Heavy Industries Co., post their quarterly profits at the same time in 11 years.

Hanwha Ocean, which was renamed from Daewoo Shipbuilding & Marine Engineering in May, is predicted to post 12.1 billion won ($8.9 million) profit for the July-September period after consecutive losses since the fourth quarter of 2020, banking sources said on Oct. 15.

HD KSOE, the intermediate holding firm of the world’s second-largest shipbuilder HD Hyundai Heavy Industries, is expected to log a 200.4 billion won surplus in the third quarter after a 71.2 billion won profit in the second quarter, sources said.

Among HD KSOE’s affiliates, HD Hyundai Heavy and Hyundai Samho Heavy Industries Co. are forecast to post profits, while Hyundai Mipo Dockyard Co. is likely to log a slight loss as the prices of its flagship petrochemical carriers have risen late.

Samsung Heavy is expected to see a 56.4 billion won profit for the third quarter, after a 58.9 billion won surplus in the second quarter.

The shipbuilders are forecast to deliver most of their cheap orders received by the first half of 2021. The companies expect their profits to increase next year as they will start building ships ordered since the second half of 2021, when ship prices began rising.

The newbuild price index rose from 145.77 in September 2021 to 162.12 in September in 2022 and 175.38 last month, according to shipping and trade market research firm Clarksons Research Services Ltd.

Many Korean shipbuilders work under so-called heavy tail contracts, receiving around 20% of the newbuild ship price when signing a deal, 30% during the construction period and the other 50% at the delivery point. It causes the shipbuilders’ demand for loans due to shortages in working capital.

As the shipbuilding industry has recently rebounded, more companies are signing standard contracts that provide each 20% of the total price at stages of signing of the contract, keel laying, steel cutting, launching and delivery of the ship.

Compared with the heavy tail, the standard form can enhance shipbuilders’ financial stability. “As clients’ demand for dry docks increases, shipbuilders have stronger bargaining power these days,” said an industry source.

The three shipbuilders aim to cut costs and develop next-generation technologies with profits expected for years, after nearly a decade of downturn in the sector since 2014.

Source: Korea Economic Daily

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