Samsung Heavy, 3 of 5 Orders from 2019 Remain
Unpaid $300 Million Since Interim Payment
Hyundai Samho Heavy Cancels 3 Contracts
[Asia Economy Reporter Oh Hyung-gil] Russia has left another scar on the shipbuilding industry, which continues to suffer operating losses. Following the Russia-Ukraine war, sanctions imposed on Russia have caused the shipbuilding industry to struggle with a series of ship contract cancellations.
According to industry sources on the 5th, Samsung Heavy Industries recently lowered its annual sales target by 10%, from the previous 7 trillion won, reflecting revenue shortfalls caused by Russian projects. Payment issues with clients arose due to financial sanctions against Russia.
Looking at Samsung Heavy Industries' orders from Russia, they include 5 LNG (liquefied natural gas) carriers ordered in 2019, 10 LNG carriers in 2020, and 7 shuttle tankers in 2021, totaling 22 vessels. Of the 5 vessels ordered in 2019, 2 have been delivered, but 3 remain, which is expected to impact annual sales.
The contract value for the 3 vessels amounts to 860 million USD (approximately 1.12 trillion KRW), with only 560 million USD received as interim payments during construction. Fortunately, the vessels ordered from Russia after 2020 have not yet entered production, so immediate sales impact is not expected.
Hyundai Samho Heavy Industries also recognized a loss of 100.9 billion KRW in the second quarter due to compensation payments for the cancellation of contracts for 3 LNG carriers with Russia. Fortunately, these 3 vessels are expected to be re-contracted with a third party, which should be reflected as a one-time gain in the third quarter.
Daewoo Shipbuilding & Marine Engineering also canceled contracts for 2 LNG carriers ordered by Russian shipowners in two instances, including last May and the previous month. The original contract scale of about 1 trillion KRW for 3 vessels has now been reduced to 338 billion KRW for 1 vessel. With ongoing sanctions, it is uncertain when even this contract might be canceled.
The shipbuilding industry, which is expected to achieve its annual order targets, is closely monitoring how severe the damage from Russian risks will be.
Shipbuilders have already secured half of their annual order targets during the first half of the year amid a continued wave of orders since last year. Korea Shipbuilding & Offshore Engineering alone has surpassed its annual order target. It has achieved 101.9% of its annual order target of 17.44 billion USD by securing 15.4 billion USD worth of 154 vessels so far.
Samsung Heavy Industries has also secured orders for 24 LNG carriers and 9 container ships, recording total orders of 6.3 billion USD this year. This corresponds to 71.6% of this year’s order target of 8.8 billion USD. Daewoo Shipbuilding & Marine Engineering, having resolved a 51-day strike, has filled about 72.2% of its 8.9 billion USD order target for this year.
Researcher Eom Kyung-ah of Shin Young Securities said, "The rise in steel prices in the second quarter, along with setbacks in Russian projects, were major factors affecting profits and losses. However, since there was no damage to cash flow, the impact on performance is expected to be minimal from next year."
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