Shipbuilding industry enters super cycle, 'we can have a good year this year'

The shipping market is booming, and South Korea's three major shipping companies are expected to achieve annual profits simultaneously for the first time. This is due to the strong performance of liquefied natural gas (LNG) carrier orders, with South Korea accounting for approximately 70% of the global market.

HD Korea Shipbuilding&Marine (a shipbuilding business holding company under HD Hyundai), Samsung Heavy Industries, and Hanwha Marine, three shipbuilding companies, recently announced their third quarter 2024 performance.

HD Korea Shipbuilding and Marine announced on October 31st that its third quarter operating profit reached 398.4 billion Korean won, a year-on-year increase of 477%. Samsung Heavy Industries announced on October 24th that its third quarter operating profit was KRW 119.9 billion, a year-on-year increase of approximately 15%.

Hanhua Marine's operating profit for the third quarter was 25.6 billion Korean won, the lowest among the three major shipping companies, but it has turned losses into profits compared to the previous quarter. Hanhua Ocean stated that despite the reduction in shipyard construction time, profits have increased due to the increase in the sales proportion of LNG carriers and the integration of factory departments.

The main reason for the three major shipping companies to achieve profitability is the increase in LNG carrier orders.

It is understood that South Korean shipping companies have implemented an order strategy centered on high value-added vessels, occupying a large share of the global LNG carrier market. In the first quarter of this year, South Korean shipyards received 100% of global orders for LNG and ammonia carriers. So far this year, South Korean shipping companies have taken on 70% of global LNG carrier orders.

The reason why South Korean shipping companies were able to achieve profitability in the third quarter is because they received the largest number of LNG carrier orders in the world. In the current booming shipping market, the three major shipping companies will achieve simultaneous profits for the first time this year, and the last time they achieved simultaneous profits was 13 years ago.

Industry insiders in South Korea have stated that considering the current backlog of orders, shipyards are already fully booked for the next three years. It is reported that the three major Korean shipping companies may hold orders exceeding 200 trillion Korean won (approximately 1.03 trillion yuan) this year.

As of now, among the three major Korean shipping companies, except for Samsung Heavy Industries, all have exceeded their annual order targets.

HD Korea Shipbuilding Ocean has received 169 new ship orders worth $18.84 billion this year, far exceeding the annual order target of $13.5 billion. It includes 8 LNG carriers, 3 LNG bunkering ships, 62 product oil tankers, 48 LPG/ammonia carriers, 22 container ships, 3 ethane carriers, 2 liquefied carbon dioxide carriers, 6 VLCC, 7 oil tankers, 2 PCTC, 1 FSRU, 1 offshore factory ship and 4 special ships.

Hanhua Ocean has received orders for 37 new ships worth approximately 7.35 billion US dollars, more than double the total annual orders for 2023 (3.52 billion US dollars). According to ship type, it includes 16 LNG carriers, 7 VLCC, 6 container ships, 2 VLAC, 1 VLGC, 1 FSRU, 1 offshore factory ship and 3 special ships.

Samsung Heavy Industries announced two consecutive orders on October 31 and November 1, including a $259 million LNG carrier order and four $330 million Suezmax tanker orders. As of now, Samsung Heavy Industries has received a total of 29 orders (approximately $6 billion), achieving 62% of this year's $9.7 billion target, including 22 LNG carriers, 2 VLACs, 1 shuttle tanker, and 4 Suezmax tankers.

Although Samsung Heavy Industries did not achieve its annual order target ahead of schedule, it stated that it is in talks for new projects such as FLNG and LNG ships, and there is not much problem in achieving the annual target. It is reported that Samsung Heavy Industries' Coral FLNG project in Mozambique is progressing smoothly and is expected to place orders in the fourth quarter of this year. The contract value will reach 2.5 billion US dollars.

Since the global financial crisis in 2008, the shipbuilding industry has experienced over a decade of decline. If the three major Korean shipping companies achieve annual profits simultaneously, it will be the first time since 2011. The market generally believes that the shipbuilding industry has entered a new super cycle, and the three major companies that have been losing money for many years can have a good year this year.