Undermining Shipbuilders' Profitability
Despite brisk order intake in the first half of this year, Korean shipbuilders are not happy because a poor report card is expected ahead of the second quarter earnings announcement.
The three major Korean shipbuilders -- Korea Shipbuilding & Offshore Engineering (KSOE), Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung Heavy Industries –- all lost money in the second quarter of 2021, said financial information provider FnGuide on July 20. KSOE posted the largest loss of 191.3 billion won, followed by Samsung Heavy Industries’ 137.7 billion won and DSME’s 58.3 billion won. Starting with KSOE’s earnings announcement on July 21, the shipbuilders will disclose their earnings.
The stock prices are also on the decline. They have fallen since a conference call by KSOE on April 29. At the time, stock analysts said the shipbuilding industry has entered a super cycle. Yet on July 20, the stock price of KSOE closed at 122,500 won, down 21 percent from early May. DSME and Samsung Heavy Industries closed at 32,150 won and 6,350 won, down 15 percent and 14 percent, respectively.
A spike in prices of steel plates for ships has weakened the profitability of the shipbuilders. Steel plates are more than 6 mm thick. Their prices account for 20 percent of all shipbuilding costs. Their average price in the latter half of 2021 was 720,000 won per ton, up 120,000 won from 2020. Two to three years ago, a lack of shipbuilding work forced the shipbuilders to take orders at low prices. Now they have to build them at higher costs due to the spike in prices of steel plates. Even in ongoing negotiations, steelmakers demand about 1.1 million won per ton, up nearly 400,000 won from the first half. They cite a rise in the price of iron ore. Accordingly, this makes the outlook for shipbuilders’ business performances in 2021 gloomy.
But this does not mean that the recent wave of new orders is useless. At the moment, ship prices are on a gradual rise, improving shipbuilders’ profitability. As of July 16, the Clarkson Newbuilding Price Index surpassed 140 points, the highest point in the shipbuilding industry since the 2008 global financial crisis. Recently, orders for offshore plants keep coming in thanks to rising oil prices.