South Korea’s three major shipbuilders are all poised to log quarterly surpluses for the July-September period and stay in the black for years, thanks to rises in newbuild ship prices, reports KED.
It will be the first time that the “Big Three” companies, HD Korea Shipbuilding & Offshore Engineering Co. (KSOE), Hanwha Ocean Co. and Samsung Heavy Industries Co., post their quarterly profits at the same time in 11 years.
Hanwha Ocean, which was renamed from Daewoo Shipbuilding & Marine Engineering in May, is predicted to post 12.1 billion won ($8.9 million) profit for the July-September period after consecutive losses since the fourth quarter of 2020, banking sources said on Oct. 15.
HD KSOE, the intermediate holding firm of the world’s second-largest shipbuilder HD Hyundai Heavy Industries, is expected to log a 200.4 billion won surplus in the third quarter after recording 71.2 billion won in profit in the second quarter, sources said.
Among HD KSOE’s affiliates, HD Hyundai Heavy and Hyundai Samho Heavy Industries Co. are forecast to post profits, while Hyundai Mipo Dockyard Co. is likely to log a slight loss as the prices of its flagship petrochemical carriers have only begun rising recently.
Samsung Heavy is expected to see a 56.4 billion won profit in the third quarter, after a 58.9 billion won surplus in the second quarter.
Korean “big three” forecast to be in the black in Q3
The shipbuilders are forecast to deliver most of their low-cost orders received before the first half of 2021 by the end of this year. They expect their profits to increase next year as they start building ships ordered from the second half of 2021, when ship prices began to rise.
The newbuild price index rose from 145.77 in Sept. 2021 to 162.12 in Sept. 2022 and to 175.38 last month, according to shipping and trade market research firm Clarksons Research Services Ltd. The index is a widely used indicator of newbuild ship prices.
Many Korean shipbuilders work under heavy tail contracts, receiving around 20% of a newbuild ship’s price when signing a deal, 30% during the construction period and the other 50% upon delivery. This arrangement fuels shipbuilders’ high loan demand due to shortages in working capital.
Amid the shipbuilding industry’s recent rebound, however, more companies are signing standard contracts that provide 20% of the cost at each stage of contract signing, keel laying, steel cutting, launch and delivery of the ship.
Compared with a heavy tail, the standard contract can enhance shipbuilders’ financial stability. “As clients’ demand for dry docks increases, shipbuilders have stronger bargaining power these days,” said an industry source.
The three shipbuilders say they aim to cut costs and develop next-generation technologies, with profits expected for years, after nearly a decade’s downturn in the sector.
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Source: The Korea Economic Daily
