The Korean shipbuilding industry is faltering due to sluggish global shipbuilding orders. Korean shipbuilders are lagging behind their Chinese rivals in landing orders in the second quarter after losing first place to China in the first quarter.
Global shipbuilding orders continued to shrink in April year on year after the first quarter. Shipbuilding orders amounted to 5.73 million compensated gross tons (CGTs) in the first quarter of 2019, a 42 percent drop from 9.96 million CGTs in the same period last year. Of the total, Korean shipbuilders won 1.62 million CGTs, placing second to China’s 2.58 million CGTs. The downturn in shipbuilding orders is believed to have continued into April.
According to Clarkson Research, a British shipbuilding and marine market analysis agency, shipbuilding orders reached 1,210,000 CGTs (40 vessels) in April. Of this, Korean shipbuilders accounted for 280,000 CGTs (seven vessels or 23 percent), falling behind China’s 770,000 CGTs (28 vessels or 64 percent). China's order receipts included the 16 units of 210,000 DWT bulk carriers ordered by Chinese clients. Japan recorded 60,000 CGTs (three vessels or 5 percent).
A CGT is a weight unit calculated in consideration of the added value of vessels and difficulties in shipbuilding work. The unit is calculated higher for high value added vessels such as liquefied natural gas (LNG) carriers, which are a specialty of Korean shipbuilders.
In cumulative order receipts until April of this year, China came in first with 3.34 million CGTs (140 vessels or 45 percent), followed by Korea with 2.02 million CGTs (45 vessels or 26 percent), Italy with 1.11 million CGTs (14 vessels or 14 percent) and Japan with 710,000 CGTs (39 vessels or 9 percent).
Global shipbuilding orders are on the decline. In April, shipbuilding orders totaled 1.21 million CGTs (40 vessels), a drop of 1.67 million CGTs from 2.88 million CGTs (90 vessels) in March. A total of 7.69 million CGTs were ordered in the January-April period, down 37 percent from 12.17 million CGTs in the same period of 2018.
The global order backlog is also falling. As of the end of last month, Korea's order backlog slid by 250,000 CGTs to 20.98 million CGTs (26 percent of the global order backlog). China posted 29.96 million CGTs (37 percent), down by 20,000 CGTs. Japan recorded 13.97 million CGTs (17 percent), a drop of 480,000 CGTs from March.
Among the Big 3 Korean shipbuilders, Samsung Heavy Industries has achieved about 33 percent of its order goal for 2019, the highest among the three, while Daewoo Shipbuilding & Marine Engineering (DSME) posted 28 percent and the Hyundai Heavy Industries Group 10 percent.
Korean shipbuilders are pinning hopes on large-scale LNG projects and offshore projects that are expected to start in the second half of this year. Qatar is expected to place orders for 60 to 100 LNG carriers. Qatar Petroleum recently sent a request for proposal to major shipbuilders in China, Japan and Korea. Korean shipbuilders are planning to send a reply by the first half of this year.
The Mozambique project which requires 10 or more LNG carriers is expected to start on a full scale in the first half of this year. Russia is expected to select a shipbuilder within the first half of this year that will supply the first of 15 or so icebreaking LNG carriers needed for the Yamal project, an Arctic development project.
However, even if Korean shipbuilders succeed in winning orders from these projects, some experts say that it will be difficult to calculate them as orders landed this year. They say that the Yamal project will probably place an order for the first unit within this year, and the Qatar project can be delayed until next year.
Last month, Samsung Heavy Industries received a big offshore plant order worth 1.1 trillion won, raising expectations offshore projects among Korean shipbuilders. Projects such as the Marzan project of Aramco in Saudi Arabia, the Barossa Project in Australia, the Bonga Southwest project in Nigeria, and the Rosebank project in the United Kingdom are highly likely to take shape this year. Hyundai Heavy Industries is reportedly interest in Marzan, Samsung Heavy Industries in Barossa and Daewoo Shipbuilding & Marine Engineering in Rosebank. Offshore projects normally cost over one trillion won so can greatly contribute to a rise in shipbuilders’ earnings.
In the meantime, Daewoo Shipbuilding & Marine Engineering announced on May 14 that it received an order for a 170,000-cubic-meter LNG carrier from an Oceania shipowner. It will be delivered to the shipowner in the second half of 2021 after being built at the Okpo Shipyard on Geoje Island in Korea. Up to now, the shipbuilder has posted US$2.5 billion in new orders, about 30 percent of its 2019 order target of US$8.37 billion. It landed orders for 14 vessels –- five LNG tankers, six very large crude oil carriers (VLCCs) and three submarines.