Friday, June 9, 2023
HomeHeadlinesKorean shipbuilders bracing for fallout from Russia war


To our FREE newsletter
Get all the latest maritime news delivered straight to your inbox.

Korean shipbuilders bracing for fallout from Russia war

Russia’s invasion of Ukraine, which has added to disruptions caused by the ongoing coronavirus pandemic, has created increasing uncertainty for most industries, with shipbuilding one of them.

South Korean and Chinese shipbuilders rank among the industry’s top players, and as tensions are growing, the impact of the geopolitical decisions made in both Seoul and Beijing over the Ukraine crisis are starting to filter through.

Firms in Korea face the risk of delayed payments from Russian owners as Seoul has supported sanctions banning major Russian banks from the Swift international payments network.

Shipbuilders could also encounter problems in securing new contracts with Russian owners, as well as the growing competition from China, after Korea was listed as an “unfriendly” country by the Kremlin earlier this month.

Moscow has indicated that firms in countries on the list would need to obtain its approval for business transactions.

“Russia-linked orders are heavily focused on liquefied natural gas (LNG) ships from Korean yards, with Samsung Heavy Industries the most exposed,” said Adam Kent, managing director at Maritime Strategies International.

He did note that the immediate impact on the global shipping industry would likely be minimal, given ships linked to Russia account for only 2.5 percent of the global order book.

Samsung Heavy Industries is reported to be delaying the delivery of two LNG carriers that are due this month.

Reports also stated that the company has the largest backlog of orders from Russian entities among Korea’s top three shipbuilders, totaling $5 billion.

“Nothing has been decided as of yet with regards to the Russia situation,” a Samsung Heavy Industries spokesman said.

Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering are South Korea’s main three shipbuilders, and they are reported to have contracts with Russian entities valued at around $6.5 billion, which includes LNG carriers and equipment.

For contracts secured years earlier, shipbuilders have received initial and ongoing payments, with around 20 percent paid when the contract is signed.

“It takes five to six years for carriers to be built and more than 60 percent of the payment is made when the carrier is delivered,” said a spokeswoman with a Korean shipbuilder, who asked not to be named due to the sensitive nature of the situation.

“For us, there is still a lot of time until we reach this stage for our contracts.”

Shipbuilders are also considering scenarios where Russian entities are unable to make payments should sanctions in response to the invasion be extended.

“If this is the case, shipbuilders can look to other markets,” the spokeswoman added.

“We do not see the risks as being too great, but given we are unable to tell how the situation will unfold, we are closely monitoring related matters.”

Under the current situation, Korean shipbuilders are likely to delay the completion and delivery to Russian firms, given the payment risks.

“Given [Daewoo Shipbuilding & Marine Engineering] is building two LNG barges and three Arc7 LNG carriers for Russia, risks need to be checked,” Daishin Securities analyst Lee Dong-heon said.

“While the company has relatively greater competitiveness in LNG carrier-building technology, and has hit the trough when it comes to earnings, fuelling expectations for improvement in the mid-to long-term, it needs to improve its financial structure and check the situation relating to Russia.”

Questions are also arising over whether the status quo could benefit China’s shipbuilders, who have contracts with Russian shipowners, but who are not set to be limited by sanctions as Beijing has yet to support Western moves against Moscow.

The two countries are engaged in a heated race for the title as the top shipbuilding nation, with China overtaking Korea in new global orders last year after attracting 49 percent compared to 38 percent.

“Chinese shipyards are also positioning themselves well, when it comes to improving vessel efficiencies and reducing emissions, having already constructed LNG dual-fuelled, methanol-fuelled and ammonia-ready ships,” Kent added.

“China isn’t currently capable of constructing ice class LNG carriers, so it is difficult to see how China can, in the near future, benefit significantly from the breakdown in relationship between Russia and Korea.”

China has been increasing its share with cost competitiveness, but Korean shipbuilders are on their toes as China has quickly caught up in constructing high-value added LNG carriers.

“As shipbuilding is a highly capital-intensive industry, strong government support and political stability is prerequisite to survive this industry which gives an edge to the Chinese shipbuilders over the other players across the globe,” Allied Market Research said.

The race for new orders is still neck-and-neck, with Korea beating its competitor in new global orders in February after attracting 67 percent compared to 26 percent, according to market tracker Clarkson Research.

“The shipbuilders with the most advanced technology do not necessarily secure the largest number of orders. Given there is a limit to production capacity, when shipbuilders reach their capacity, they tend to focus on more profitable contracts for high-value-added carriers,” said the spokeswoman with the Korean shipbuilder.

The conflict in Ukraine is projected to weigh on the shipbuilding industry for the remainder of the year.

“Beyond direct connections with Russia, the impact on the shipbuilding industry will be mediated through the change in demand for new builds due to the economic fallout of sanctions and high energy prices on the global economy, with Europe especially exposed to risk,” Kent said.

Allied Market Research said the turmoil in energy markets owing to Russia’s invasion of Ukraine could bolster the shipbuilding industry.

“There is a market expectation that demand for shipping LNG will witness a considerable rise owing to replacements of Russia’s gas transported via pipelines,” it said.

“The Russia-Ukraine war has forced countries such as Germany, which imports a considerable amount of LNG from Russia, to rethink their energy policies about importing gas.”

Source: The Korea Times

Related Posts


Finance & Economy
Shipping News

Trafigura publishes 2023 interim results showing a strong performance

Trafigura, a market leader in the global commodities industry, released its 2023 Interim Report today for the six-month period ended 31 March 2023. The results...

Globus Q1 results hit by weak dry bulk market

Globus Maritime Limited, a dry bulk shipping company, reported its unaudited consolidated operating and financial results for the quarter ended March 31, 2023. Revenue $8.6 million...

BW LPG appoints new CFO

BW LPG announced that it has appointed Ms Samantha Xu as Chief Financial Officer (CFO), effective 1 September 2023. Ms Xu has over 20 years...

Frontline Posts Highest First Quarter Results Since 2008

Frontline plc reported unaudited results for the three months ended March 31, 2023: Highlights Highest first quarter profit since 2008 of $199.6 million, or $0.90 per...

Diana Shipping posts slightly lower Q1 profit; takes out $123m in loans

Diana Shipping reported net income of $22.7 million and net income attributed to common stockholders of $21.3 million for the first quarter of 2023....

Celestyal Participates In Promotion Of The Tourist Destination Of Central Macedonia

Celestyal, the award-winning, number one choice for travellers to the Greek Islands and the...

Capesize, panamax gains drive Baltic index higher

The Baltic Exchange’s main sea freight index rose for a fourth straight session on...

Baltic rises to over 3-month peak on firm demand for larger vessels

The Baltic Exchange’s main sea freight index rose on Wednesday to scale its highest...

Baltic index logs best day in nearly 3 months

The Baltic Exchange’s main sea freight index posted its biggest single-day gain since mid-March...

Taiwan Shipping Firms Set to Hand Out Bumper Bonuses Again

Taiwanese shipping companies are handing out bumper mid-year bonuses despite a slump in global...

Iraklio port tender set for another delay

The opening of the binding financial offers for 67% of Iraklio Port Authority had been scheduled for Thursday, but this is no longer expected...

APM Terminals extends concession of Kalundborg container terminal

APM Terminals has reached an agreement with the Port of Kalundborg to extend the concession of Kalundborg container terminal by 10 years to 2033. In...

US West Coast port workers shut terminals in showdown over pay

The employers of more than 22,000 dock workers at U.S. West Coast seaports on Friday said the union representing those laborers “is staging concerted...

DP World Completes Terminal Expansion Project Vancouver Port

DP World has completed the AED954 million ($259.78 million) Centerm expansion project, increasing container throughput at the Port of Vancouver by 60 percent. The terminal...

DP World completes AED 954 million Vancouver port expansion

DP World and the Vancouver Fraser Port Authority have celebrated two historic events – the completion of the Centerm Expansion Project at DP World...