Higher Ship Prices Expected: Korean Shipbuilders Have Much Anticipation for Hike in Ship Prices Next Year | BusinessKorea

Thursday, January 18, 2018

A very large crude oil carrier (VLCC) built by Hyundai Heavy Industries.
A very large crude oil carrier (VLCC) built by Hyundai Heavy Industries.
Seoul, Korea
13 December 2017 - 11:15am
Jung Min-hee

It is noteworthy that ship prices will rise next year with the shipbuilding industry shrinking recently due to forecasts about hundreds of billions of won in loss by Samsung Heavy Industries. This is because a rise in ship prices is highly likely to pull up prices of orders across the board and make an improvement to shipbuilders’ business performances.

According to the shipbuilding and securities industries on December 12, it was forecast that prices of Korean ships will inflate about 15% this year thanks to a strong Korean won, rising steel prices and limited competition among others.

The Clarksons Index, a lagging indicator, is expected to climb more than 10 percent in the second half of next year. "A rise in prices of orders to Korean shipbuilders started to spread from mid-sized vessels of Hyundai Mipo Dockyard to large-sized ones of Hyundai Heavy Industries," said Park Moo-hyun, a researcher at Hana Financial Investment. "A strong Korean won and a hike in steel prices will accelerate a rise in prices of orders to Korean shipbuilders."

Observing recent orders, some types of vessels are taking the initiative in raising vessel prices. Hyundai Heavy Industries received orders to build three very large crude carriers (VLCCs) from two shipping companies (Sinokor Merchant Marine and Hyundai Glovis) this month. In particular, it was of note that the shipbuilder received orders at prices higher than their market prices. Daewoo Shipbuilding & Marine Engineering (DSME) also landed a VLCC contract from a Greek company on December 4. It was also reported that DSME got the order for a price at the level of Hyundai Heavy Industries’s prices of the three vessels. "We now know that DSME landed the order at a price US$2 million more than US$ 81 million, the price of a VLCC," an industry official said.

Such orders can be credited to technological quality satisfying international environmental standards. Experts say that vessel prices rose as various kinds of devices were added in order to honor Tier 3 Standards, an environmental regulation set by the International Maritime Organization (IMO). 

"Although China is still continuing its offensive with low prices, the Korean shipbuilders were able to land the orders at prices higher than market prices because they adopted high-end specifications to meet tougher environmental regulations," said an official of the shipbuilding industry.

In recent years, the Korean shipbuilding industry's biggest concern was low prices of ships built in China. Even though Korean shipbuilders told shipping companies about the quality of ships built by Korean shipbuilders, a lot lower prices offered by Chinese shipbuilders made Korean shipbuilders helpless. Pan Ocean recently placed orders for six super large ore carriers (VLOCs) with the Chinese shipbuilding industry. The contract totaled US$444.51 million and US$74.09 million apiece. The price difference is large compared to an order amounting to about US$80 million to build a VLOC which Polaris Shipment placed with Hyundai Heavy Industries.

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