Korean Shipyards Still Performing Strongly

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Like the super tankers they build, the Korea shipyards, home to some 40% of the world’s shipbuilding industry, take a long time to be deflected from their course. The number two shipbuilder by sales Samsung Heavy Industries just announced record third quarter results and expressed confidence in the next two quarters cushioned from the current fall in the freight market by full order books. The Korean yards in general have a focus on oil tankers and drilling rigs, both of which are still enjoying good capacity utilization compared to the dry bulk or container markets. Samsung will benefit in the months ahead from a drop in steel prices, although shipbuilding grade steel has not fallen as fast or as far as commercial grades.

Builders of Dry bulk ships that carry iron ore, coal, bauxite, wheat and other commodities are not faring as well however. There are suggestions up to 40% of orders for certain sizes of vessels could be cancelled and already ship owners have forfeited tens of millions of dollars in deposits to cancel orders for bulk carriers. A process the industry expects to accelerate both as ship owners decide there isn’t the cargo to justify the new ships and as shipyards, due to the tight credit market, struggle to raise the guarantees required to underwrite the construction. Despite the strength of the big three Korean shipyards construction activity shipbuilding grade steel is likely to continue to trend downwards as China floods the market following the planned reduction in export taxes next month.

–Stuart Burns

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