Korea continued to rank number one in the world in terms of winning shipbuilding orders in January, following last year’s impressive performance. The outlook for the shipbuilding industry is predicted to be brighter this year.
According to the forecast of the Foreign Economic Research Institute under the Korea Import-Export Bank (KEXIM), the Korean shipbuilder will certify the order value to grow by 100% compared to 2020, in the foreground. As the bridge replaces old ships in the world increasingly stricter environmental regulations. Public opinion is considering whether the Korean shipbuilding industry will get out of the optimal tunnel and sweep back. Economist Chung Chul-jin, analyzing the foreground and prospects of the Korean shipbuilding industry.
The job Seoul maintains its position in terms of shipbuilding orders is even more meaningful in the senior world facing COVID-19 during the epidemic. According to UK-based shipbuilding and shipping research firm Clarkson Research Service, Korean shipyards have the world’s top, being contracted to build 187 ships, equivalent to 8.19 million tons. aggregate offsets (CGT), accounting for 43% of total global shipbuilding orders (19.24 million offsets). Special, Korea surpassed competitors such as China and Japan, winning many high-quality shipbuilding orders.
Increased ability to compete with ships with high added value
Increase competitiveness with high-value-added vessels
In 2020, China led South Korea in cumulative shipbuilding orders until June, but in the second half of the year Seoul overtook Beijing with double orders to take the number one spot. world. Korea has a competitive advantage in orders to build liquefied natural gas (LNG) and large crude oil tankers (VLCC), with the unit cost of each of these vessels being $180 million and $80 million, respectively. USD for one pcs. In particular, the number of last-minute winning orders last year were all high-value-added ships. Analyst Chung Chul-jin analyzed.
In 2020, Korean shipbuilders won 36 out of 49 orders for large liquefied natural gas tankers (70%), 35 out of 41 orders for large crude oil tankers (85%). This proves that shipping businesses trust high-quality ships of Korean shipbuilders. Another favorable factor for Seoul is the change in environmental regulations that has become a hot topic during the administration of US President Joe Biden. It is expected that LNG shipbuilding orders will increase while Korea is dominating its competitors in this segment. The more important environmental issues are, the brighter the future Korean shipbuilding will have.
Environmentally friendly shipbuilding, facilities investment and ESG management
Clarkson Research Service predicts that the number of shipbuilding orders this year will increase by 23.7% compared to last year, of which South Korea will be the biggest beneficiary. In fact, Korean shipbuilders have received a series of shipbuilding orders since the beginning of this year. Expecting a recovery in the shipbuilding industry, the three largest shipbuilders in Korea aim to win more orders in 2021 than in the same period last year. About 10 years ago, Seoul lost the number one position in the global shipbuilding industry to Beijing, but thanks to superior technology, the Korean shipbuilding industry has revived. Of course, direct competitors like China and Japan don’t sit back and watch. The three countries will certainly compete fiercely in the global shipbuilding market.
Although the shipbuilding industry has a positive outlook this year, the shares of shipbuilders have increased less than the growth rate of the Korean stock market index (KOSPI). This result comes from investors’ concerns that shipbuilders run after small profits or short-term profits. In fact, the business report of the Korean shipbuilding industry in the fourth quarter of last year was not very positive, most of the ships sold had low profit margins. The biggest hurdle for shipbuilders is recovering profits, but this depends on infrastructure investment and environmentally friendly, high-value-added shipbuilding. Currently, three factors environmental, social and governance (referred to as ESG), are receiving more and more attention. Expert Chung Chul-jin explains.
ESG has become the keyword for the industry in general including the shipbuilding industry. Even large investors consider three ESG factors before deciding to invest in a business. The Korean shipbuilding industry is currently rated B+ on ESG, which is not a high rank. Therefore, Korean enterprises need to ensure competitiveness in friendly shipbuilding technology, in the context that the global economy is showing signs of recovery. Currently, the improvement of the ESG rating has a great impact on the stock prices of Korean shipbuilders.
The demand for shipping increases sharply, the opportunity to regenerate the shipbuilding industry
Another task of the Korean shipbuilding industry is to revive the medium-sized shipbuilders, which once played an important role in the development of the industry. Some of them used to be the top 10 shipbuilders in the world in the 2000s, but are now struggling with the battle for survival. According to data from the Export-Import Bank of Korea, seven mid-sized Korean shipbuilders won orders for only 14 ships last year, worth about $500 million, or an eighth of that. figure of 3.9 billion USD in 2010. This reflects the large gap between enterprises in the shipbuilding industry. The collapse of mid-range shipbuilders is sure to be a heavy blow to the industry as a whole, as the related industrial ecosystem will disappear. Expert Chung Chul-jin commented.
This year, the shipbuilding industry needs to focus more on high value-added ships, environmentally friendly ships, based on ESG principles. In addition, the Korean shipbuilding industry can only grow strongly when parallel with the shipping industry, like the 2000s. Unfortunately, Hanjin shipping company, which is a large shipping enterprise. 7th in the world went bankrupt in 2017, dealing a fatal blow to the entire Korean industry. The situation somewhat improved when the Government announced a 5-year plan to rebuild the shipping industry. I hope this will positively affect the shipbuilding industry.
The Korean shipbuilding industry has unfortunately declined over the past 10 years, causing many businesses to go bankrupt, leaving a big scar on the economy. Now, the opportunity to revive this industry is coming in the context that the volume of sea freight may increase sharply after the end of the COVID-19 epidemic, in addition to the need to replace, convert to new types of ships, increased environmental friendliness. The Korean shipbuilding industry is expected to take advantage of the opportunity and revive it back to its golden age.
