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Korean shipyards’ profitability to improve on higher LNG tanker contract prices

South Korean shipyards grappling with intensifying industry competition, surging material prices and labor costs are expected to breathe easily with rising LNG tanker orders and contract prices on higher demand.

According to data compiled by Maeil Business Newspaper on Thursday, Korea Shipbuilding & Offshore Engineering Co. (KSOE), Daewoo Shipbuilding & Marine Engineering Co. (DSME) and Samsung Heavy Industries Co. this year have brought home a combined 13.18 trillion won ($10.2 billion) worth orders for 48 LNG carriers.

The average contract price for a 174,000 cubic meter LNG tanker is worth $222.08 million, the highest since British shipbuilding and marine industry tracker Clarkson Research Services started compiling related data in 2014. It was up 5.8 percent from the previous record high of $210 million last year.

What is encouraging is the fast-rising prices of new LNG vessels this year.

Hyundai Samho Heavy Industries Co. on Wednesday bagged LNG orders with a contract price of $240 million each, marking the highest in history. The contract price for an LNG vessel reported by Hyundai Samho Heavy Industries and DSME in January was at $207.4-217.9 million.

The shipbuilding industry has been grappling with worsening profitability from falling shipbuilding prices amid a protracted industry slump. A new LNG tanker was valued at an average $205 million in 2014, but the price plunged 11.2 percent to $182 million in 2018.

On top of that, soaring material prices recently have posed a threat of deteriorated margins despite demand increase. But surging LNG tanker prices are raising the possibility of easing their profitability concerns.

The strong dollar also is another upside. The U.S. dollar traded at 1,191 Korean won in Seoul on Jan. 3 now rose to 1,286 won on Wednesday, which means a foreign-exchange profit of 8 percent to local shipyards.

Source: Pulse

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