Key Points Check for Shipbuilding in the Second Half of the Year... "September Ship Prices More Important Than Ever"

Stable PC Line Freight Rates and Delayed Recovery of China's LNG Imports
Despite Negative Operating Cash Flow, Samsung Heavy Industries' Net Debt Decreases by 200 Billion KRW
"Annual Guidance Expected to Be Achieved Smoothly This Year"

The sea trial of the large LNG-powered container ship, the world's first built by Hyundai Heavy Industries Group. Photo by Hyundai Heavy Industries Group

[Asia Economy Reporter Choi Seoyoon] As the upward trend in shipping rates slows down, the trend of shipping rates in September, after the vacation season ends, is considered more important than ever because it will determine the direction of shipping rates in the second half of the year.

According to the industry on the 11th, Lee Bongjin, a researcher at Hanwha Investment & Securities, stated in a report, "The steady PC vessel freight rates are positive, and although some shipbuilders recorded negative operating cash flow in the second quarter, it is not a level of great concern," adding, "LNG liquefaction project groundbreakings have increased this year, with a total of 10 projects amounting to 30 million tons started in the U.S. alone, which is expected to boost orders for related equipment manufacturers."

Researcher Lee Bongjin pointed out steady PC vessel freight rates, delayed recovery of China's LNG import volume, and negative operating cash flow as key points to watch in the second half of the year.

Regarding PC vessel freight rates, daily rates rose to $24,000 due to restrictions on Russian refined oil exports, nearly doubling from $12,625 at the beginning of the year. Although the decline in China's LNG import volume has somewhat eased, it has not recovered to last year's levels. Lee warned against excessive optimism about the LNG market.

Looking at the second-quarter operating cash flow of domestic shipbuilders, Hyundai Heavy Industries and Hyundai Mipo Dockyard recorded positive figures, while Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering recorded negatives. Samsung Heavy Industries, which disposed of assets scheduled for sale, reduced net borrowings by more than 200 billion KRW compared to the previous quarter despite negative operating cash flow.

Lee said, "Considering the scale of net borrowings up to the second quarter, it is not a level to be concerned about," but analyzed, "However, as we move into the second half, the workload will increase and working capital burdens may grow."

LNG liquefaction projects are actively being newly constructed mainly in the U.S. According to Clarkson, the number of projects under construction increased from 24 at the beginning of the year to 32 in August. Two projects have been completed, and 10 projects are newly under construction. Lee said, "All projects under construction are U.S. projects with a total annual capacity of 30 million tons," adding, "The expected number of vessels is 55, and during the full-scale construction of these projects, a strong demand for fittings is anticipated."

LNG carrier built by Samsung Heavy Industries. Photo by Samsung Heavy Industries

Meanwhile, the cumulative order volume of the five domestic shipbuilders?Hyundai Heavy Industries, Hyundai Mipo Dockyard, Hyundai Samho Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering?up to July was $32.72 billion, a 3.3% increase compared to a year ago, but slightly slower than the 5.7% cumulative growth rate up to June.

Researcher Lee explained, "Orders in July were led by the three Hyundai Heavy Industries companies, and Hyundai Mipo Dockyard recorded its highest monthly orders since June last year," adding, "The order disclosure volume of the five shipbuilders in August was $1.88 billion, falling short of last August's $2.63 billion." He also predicted that the cumulative orders in August would fall below last year's level if the current trend continues.

He forecasted that achieving the annual guidance this year would be smooth. Hyundai Samho Heavy Industries exceeded its target by 171%, Hyundai Heavy Industries and Hyundai Mipo Dockyard surpassed 80%, and Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering achieved 71.6% and 72.2%, respectively.