Seoul finance watchdog: Newbuildings recovery may be a blip

Financial Services Commission chairman Choi Jong-ku. Credit: PA
Financial Services Commission chairman Choi Jong-ku. Credit: PA

The chief of South Korea’s Financial Services Commission has urged the country’s shipbuilders to continue restructuring, as the recent recovery in vessel orders may be short-lived.

Speaking at an audit session of the shipbuilding industry on 18 October, Choi Jong-ku alluded to the rise in the number of liquefied natural gas (LNG) carrier orders placed with the country’s ‘big three’ shipbuilders – Hyundai Heavy Industries (HI), Samsung HI, and Daewoo Shipbuilding & Marine Engineering (DSME). DSME is the market leader, building 40-plus of the more than 100 LNG carriers on order.

“The recent boom in newbuilding orders should be re-examined in the context of the temporary nature of trends in LNG carrier orders,” Choi said.

Shipowners have been ordering LNG carriers speculatively, based on forecasts of positive long-term growth in demand for natural gas. A gravitation towards clean energy and an awareness of emissions are encouraging natural gas consumption.

The last boom in LNG carrier orders was seen from 2011–12, as the shutdown of nuclear energy in Japan, following the Great East Japan Earthquake, resulted in a one-off surge in natural gas consumption. Thereafter, there was a sharp drop in LNG carrier orders until this year.

In the first nine months of 2018, shipbuilders worldwide recorded vessel orders of 11.1 million compensated gross tonnes, representing a 12.9% increase from the same period in 2017. During the same period, South Korean shipbuilders’ global market share increased to 45% from 29.8%.

“South Korean shipbuilders have seen orders go up as overall vessel orders are up worldwide. However, local marine equipment and part makers are still experiencing difficulties due to a very low number of ship orders in 2016,” Choi said.

He added that vessel prices have not recovered significantly and that the US-China trade war presents uncertainties. Steel prices are also increasing, putting pressure on shipbuilders’ margins.

“In order to support the shipbuilding industry, we will reorganise policy financing and restructuring directives,” he said.