[From Domestic to Overseas] ② Overseas Construction Brightens Amid High Oil Prices... Notable Orders from Middle East and USA

"Middle Eastern Oil-Producing Countries Show Correlation Between International Oil Prices and Order Amounts"
USA Ranks 4th Among 84 Order Countries... Market Expansion Expected

Korea's First Exported Nuclear Reactor Unit 1 to the United Arab Emirates (UAE)
[Photo by Korea Electric Power Corporation]

[Asia Economy Reporter Noh Kyung-jo] A green light has been turned on for overseas construction orders. Although it cannot compare to the period from 2010 to 2014 when annual orders easily exceeded $50 billion, it is expected to surpass the record set in 2020 (35.12917 billion dollars), which achieved the highest order amount since 2016.

In particular, the high oil price trend triggered by Russia's invasion of Ukraine has moved Middle Eastern oil-producing countries, which had previously locked up orders. The soaring exchange rate is advantageous for construction companies with many overseas construction sites, as it allows short-term foreign exchange gains. However, if the rise in raw material prices and interest rates prolongs, it could turn into a negative factor.

The Yoon Suk-yeol administration has set a goal to achieve $50 billion in overseas construction orders annually during its term. Accordingly, the Ministry of Land, Infrastructure and Transport announced that it will spare no effort to resolve difficulties in the overseas expansion process and discover related policies. Attention is focused on whether a resurgence can be achieved in the Middle East, a traditional stronghold of overseas construction orders, and whether remarkable results can continue in the United States.

◆ Accelerated breakthrough of $20 billion in orders... Impact on 'high oil price' oil-producing countries

[Source=Overseas Construction Association]

According to the Overseas Construction Association's Overseas Construction Comprehensive Information Service on the 20th, as of the 19th, this year's overseas construction order amount is $21.16172 billion, 26% more than the same period last year ($16.79532 billion). The number of orders and countries entered increased by 34 and 3, respectively, during the same period.

By region, Asia leads with $8.39843 billion, followed by the Middle East with $6.18128 billion. The Pacific/North America and Europe are $2.86257 billion and $2.55117 billion, respectively.

By company, Samsung C&T is ranked first with $4.99922 billion in orders. Next are ▲Samsung Engineering with $2.43517 billion ▲Hyundai Engineering with $1.72752 billion ▲Lotte Construction with $1.42331 billion, in that order.

This year, the time to surpass $20 billion in orders was advanced by about two months compared to last year. High oil prices had a considerable impact.

According to the 'Middle East Infrastructure and Nuclear Power Market Status and Outlook' report released by the Overseas Construction Association earlier this month, the correlation coefficient between international oil prices and overseas construction order amounts from 1966 to 2021 was 0.92, close to 1. Although some evaluations suggest that the meaning of this correlation has been diluted as companies increasingly select orders based on profitability and avoid low-price cutthroat competition, oil-producing countries are considered an exception.

Jung Ji-hoon, a research fellow at the Overseas Construction Association, said, "In the case of oil-producing countries, when the market oil price is higher than the balanced budget oil price, it is still valid that this leads to expanded orders → increased bidding projects → weakened competition and increased probability of our companies winning orders." He added, "Expectations are rising for the Middle East construction market, where 'oil money' is flowing in massively due to recent international oil prices at the $80?100 level."

According to data released in July by global market research firm IHS Markit, the construction market in major Middle Eastern countries is expected to grow at an average annual rate of 7.8% until 2025. The nuclear power market is especially attracting attention. According to the U.S. Energy Information Administration (EIA), Middle Eastern nuclear power generation capacity is expected to expand to 41 billion kWh by 2025, six times the current level, and to 58 billion kWh by 2030, ten times the current level.

◆ Rising expectations for Middle East nuclear power and Neom orders... Solid performance in the U.S. as well

A partial bird's-eye view of 'The Line,' one of the Neom projects in Saudi Arabia.
[Photo by Neom official website]

In fact, Korea Hydro & Nuclear Power recently secured a nuclear power plant order in Egypt worth $2.47357 billion. Egypt, classified as part of the Middle East in performance statistics, has recorded a total of $2.77067 billion in orders, marking the first time in 15 years since 2007 that orders exceeded $2 billion in Egypt.

Adding Saudi Arabia's order amount ($2.36695 billion), the total orders from just these two Middle Eastern countries exceed $5 billion. The 'Neom' project, expected to spark a 'second Middle East boom,' is also pending, with Saudi Crown Prince Mohammed bin Salman's visit to Korea anticipated around late October to November.

The strong performance in the United States, which had been outside the top 10 in overseas construction orders for the past three years, is also notable. This year is the first time since 2015, when the order amount was $1.77199 billion, that orders in the U.S. have surpassed $2 billion annually. Recent performance figures are approximately $209.84 million in 2019, $293.45 million in 2020, and $943.23 million in 2021. This year, orders have reached $2.14115 billion so far, ranking 4th among 86 countries with orders.

Samsung C&T played a significant role in this. Samsung Electronics, a group affiliate, is investing $17 billion to build a foundry (semiconductor contract manufacturing) plant in Taylor, Texas. Samsung C&T secured part of the construction in July ($1.91434 billion) and is expected to continue winning orders depending on the project's progress.

There is a prevailing forecast that construction orders in the U.S. will gradually increase. Global consulting firm GlobalData projected the U.S. construction market size to grow 2.1% from the previous year to $1.6338 trillion this year.

GlobalData stated, "The U.S. construction market is expected to record an annual growth rate of 3.7%, reaching approximately $1.8994 trillion by 2026," adding, "Government spending under the Infrastructure Investment and Jobs Act (IIJA) is also expected to be possible from next year."