Tuesday, June 2, 2020
South Korean Shipbuilders Undergoing Difficulties
A Double Whammy of Oil Price Drop and COVID-19
South Korean Shipbuilders Undergoing Difficulties
  • By Jung Min-hee
  • March 11, 2020, 09:18
Share articles

South Korean shipbuilders are experiencing difficulties as global shipbuilding orders have plunged amid the COVID-19 outbreak.

South Korean shipbuilders’ concerns are rising with international oil prices plummeting and the spread of COVID-19 leading to less and less orders.

According to market research firms, global new shipbuilding orders totaled 1.17 million CGT for the first two months of this year whereas the amount was 7.72 million CGT and 4.89 million CGT in the same periods of 2018 and 2019, respectively. This is mainly because no large LNG carrier order has been placed since the beginning of this year. Orders for vessels of that type, however, are expected to be placed soon by Qatar, Russia and Mozambique.

The problem is that the two factors mentioned above will continue to affect their business. With the Chinese economy losing steam, delivery from Chinese shipbuilders is being postponed and clients are withdrawing their orders.

Last month, the global ship delivery dropped from 3.49 million CGT to 1.17 million CGT. Besides, the delivery from Chinese shipbuilders plunged by 96 percent or 1.45 million CGT. This is likely to be repeated due to the shortage of personnel and equipment in China.

In the short term, South Korean shipbuilders may benefit from a decline in clients’ trust in Chinese shipbuilders. In the long term, however, a decline in the number of orders will affect South Korean as well as Chinese shipbuilders.
 

As for shipping companies, cheaper oil can mean less cost burden, and yet it is no good news with the freight volume itself decreasing in the wake of the spread of COVID-19. Besides, their anticipated LNG carrier projects are something that cannot benefit from lower oil prices. Especially, those projects in Qatar and Mozambique have already been postponed from last year due to U.S.-China trade disputes and can be postponed again.

South Korean shipbuilders, in the meantime, are yet to face direct repercussions of the coronavirus despite their concerns. Their business goals for this year are expected to be met if the LNG carrier projects go on as scheduled. The goal is US$15.9 billion for Hyundai Heavy Industries, US$8.4 billion for Samsung Heavy Industries, and US$7.21 billion for Daewoo Shipbuilding & Marine Engineering.