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South Korea’s shipbuilding industry shows hopeful signs of finally coming out of a lengthy stagnation from global slump with shipyards busy with new orders flowing in beyond their expectations.
Once-the-world’s powerhouse, Korean shipbuilders lost their top position in terms of order book to Chinese rivals from 2008.
“For the first time in five years all of the nation’s top three shipbuilder - Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. (DSME) and Samsung Heavy Co. - recorded operating profits in the first quarter,” a source from the shipbuilding industry noted.
Industry experts predict once shipbuilders complete construction of offshore plants that took heavy a toll on their balance sheet amid a fall in oil prices by the end of this year, their bottom lines would improve further next year. Some even say that it is a matter of time before Korea regains its reputation as the world’s top shipbuilding powerhouse.
Amid growing expectations for the industry recovery, Hyundai Samho Industries Co. attracted investment worth 300 billion won ($264 million) from IMM Private Equity (PE) last month. A senior official from the investment company said it made the bold investment decision as the shipbuilding industry is expected to be fully back on track around 2019 or 2020.
The stretching order books of the country’s shipyards further brighten the hopeful outlook. The three shipbuilders of Hyundai Group - Hyundai Heavy, Hyundai Samho and Hyundai Mipo - have clinched combined orders for 39 ships worth $2.3 billion from January to April this year, five times more than $400 million worth orders for eight vessels they won throughout last year. DSME who managed to grab a lifeline from the state-led bailout program last month has secured $770 million orders for seven vessels over the same period, almost half of the $1.55 billion orders for 12 ships last year. Samsung Heavy has won orders worth $1.84 billion for six vessels, a much improved performance compared to the same period last year when it had not received a single order. Samsung Heavy is also close to sign a deal worth $2.5 billion to build a floating liquefied natural gas (FLNG) vessel, as part of a project called Coral FLNG project in Mozambique.
The country’s top three shipbuilders will also likely benefit from International Maritime Organization’s (IMO) decision to toughen regulations to cut sulphur oxide emissions from ships starting 2020, and falling prices of LNG and liquefied petroleum gas (LPG).
Starting 2020, the global cap on sulphur emissions from vessels will be cut from the current 3.5 percent to 0.5 percent. Under the tightened regulation, ship owners should switch fuels to marine gas oil (MGO) or environmentally-friendly LNG or equip vessels with a desulfurizer.
As the U.S.-led shale gas boom has dragged down the price of natural gas, demand for LPG and LNG has been rising in India and some developing countries in South East Asia. This would be a great boon to the nation’s big three shipyards who have been recognized worldwide for their outstanding competitiveness in building LPG and LNG carriers. According to a U.K.-based research firm Clarkson Research Services, the global orders for gas carriers are expected to increase steadily from 20 vessels in 2016 to 38 in 2017, 44 in 2018, 82 in 2019, 94 in 2020 and 104 in 2021.
By Moon Ji-woong
Copyrights Pulse by Maeil Business News Korea. All Rights Reserved.
Source: Pulse by Maeil Business News Korea (May. 10, 2017)