Korean shipbuilders to continue benefiting from high prices

[Courtesy of HD Hyundai Heavy Industries]

Despite concerns about a potential peak in the shipbuilding industry due to the anticipated reductions in ship orders, the prices for new ship constructions have continued to trend upward. Supported by a large backlog of orders, Korean shipbuilders are leveraging their advantageous position in negotiations with shipping companies and observers predict that this trend could persist as Korean shipyards focus on selective orders for high-value, environmentally friendly vessels.

According to U.K.-based shipbuilding and maritime analysis institute Clarkson Research on Monday, the global newbuilding index stood at 181.04 as of December 12th, 2023, breaking the previous record of 180.38 set on January 5th, 2024, the highest figure in over 15 years since early December 2008.

The primary driver behind the recent surge in ship prices is the increased negotiating power of shipyards that have three to four years’ worth of backlogs amid projections that global ship orders will decline in 2024. According to the Overseas Economic Research Institute of the Export-Import Bank of Korea, global ship orders are expected to fall by 30 percent on year to 29 million CGT (Compensated Gross Tonnage) during the year.

But Korean shipyards, including the top three shipbuilders (Samsung Heavy Industries Co., HD Hyundai Heavy Industries, and Hanwha Ocean), and Chinese shipbuilders have consistently secured plenty of orders, strengthening their negotiating positions in the industry.

“The recent increase in ship prices is evidence that even Chinese companies are not operating at lower prices,” an industry insider said, emphasizing the ample orders secured by Korean shipbuilders.

The top three Korean shipbuilders’ selective order strategy of focusing on high-value vessels is thus expected to remain effective. With shipbuilding prices staying high and the International Maritime Organization’s (IMO) environmental regulations aiming to reduce greenhouse gas emissions by 40 percent by 2030, demand for environmentally friendly vessels is expected to remain steady.

Industry insiders are closely monitoring the recent trend of large-scale orders for Very Large Ammonia Carriers (VLACs) from Korean shipbuilders, who nabbed orders for 15 VLACs, including 8 by HD Hyundai Shipbuilding, 5 by Hanwha Ocean, and 2 by Samsung Heavy Industries, from September to December 2023 and which accounted for 71 percent of the global VLAC orders (21 ships) that year.

Industry experts suggest that if the adoption of ammonia-powered vessels becomes mainstream in 2024 or 2025, the demand for VLACs could increase due to the growing use of “carbon-neutral” ammonia fuel.

“With the rapid opening of the ammonia tanker market, global orders for Korean shipbuilders are expected to continue until 2035, with an average of 20 VLAC orders per year,” Daol Investment & Securities analyst Choi Kwang-sik said.

The recent increase in maritime freight rates, driven by the Suez Canal transit restrictions triggered by the Houthi rebels’ attack in Yemen, could also accelerate orders for environmentally friendly vessels. If maritime disruptions persist, shipping companies that have improved profitability thanks to higher freight rates could have more resources to invest in eco-friendly vessels.

HD Korea Shipbuilding & Offshore Engineering announced on Monday that it signed construction contracts for two liquefied petroleum gas (LPG) carriers totaling 310.1 billion won ($234 million) with a Middle Eastern client.