Korean Shipbuilding Industry Increasingly Anticipating Landing Tanker Orders

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In 2024, Korean shipbuilders are likely to benefit from an increase in tanker orders because of increased distances for crude oil transportation due to the prolonged war in Ukraine, rising unrest in the Red Sea region, the gateway to the Suez Canal, and a shortage of shipbuilding slots with Chinese shipbuilders.

Annual orders for global tankers stood at 300 as of early December 2023, more than doubling year on year to reach 143, said Clarkson Research, a U.K.-based shipbuilding and shipping market analysis organization on Jan. 2.

The reason behind the sharp increase in tanker orders is the Russia-Ukraine war. Sanctions on Russian crude oil imports pushed Europe to increase imports from China, India and elsewhere, resulting in the sharp increase in tanker ton-miles (the weight of cargo multiplied by the distance traveled). This, coupled with higher freight rates and demand for additional vessels, drove the increase in tanker orders.

Tanker orders are expected to remain strong this year as well. They were small compared to crude oil volumes over the past two years following the outbreak of the war in Ukraine. According to Clarkson Research, global demand for crude oil tanker cargoes ascended 6.1 percent year on year to 339.9 million deadweight tons (DWTs) in 202d3, but global gross cargoes are expected to swell only 3.2 percent to 437 million DWT.

The growth of demand for cargo volume is expected to jump 3.5 percent over the same period, but the growth of supply is forecast to reach only 0.2 percent. As for very large crude carriers (VLCCs) that are 300,000 to 320,000 DWTs, there will be a total shortage of 129 vessels by the end of this year, according to Hi Investment & Securities.

Moreover, Houthi rebel attacks on merchant ships in the Red Sea and a delay in the normalization of the Suez Canal are expected to kindle an increase in orders. Instead of the Suez Canal, which carries 8 to 12 percent of the world’s crude oil, a detour through Africa’s Cape of Good Hope would extend distances traveled, fueling a need for additional vessels.

“Orders for liquefied natural gas (LNG) carriers and container ships have exploded over the past three years but not enough tankers have been ordered to meet demand,” said an industry insider. “In addition to the supply and demand situation, geopolitical risks such as the Red Sea crisis will increase and accelerate orders.”

Korean shipbuilders’ recent success in winning tanker orders is also a factor in raising expectations. Chinese shipbuilders took 88.9 percent of the 18 VLCCs ordered last year, but among the 52 Suezmax (130,000-150,000 DWT) crude carriers, Korea won 22 (42 percent), beating China (40 percent).

In particular, since September 2023, Daehan Shipbuilding and Hyundai Samho Heavy Industries have won orders for six and four units in a row, respectively. This is seen as a sign that orders are shifting to Korean shipbuilders in the future as Chinese firms, which have been the world’s top shipbuilders for three consecutive years from 2021 to 2023, are running out of shipbuilding slots.

Source: Business Korea