The big three Korean shipbuilders in the red despite a growing order book
South Korea’s three major shipbuilders remain in the red despite strong new ship orders so far this year, led by high-priced vessels such as liquefied natural gas carriers.
According to industry officials on Monday, the “big three” – Korea Shipbuilding & Offshore Engineering Co. (KSOE), Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. – secured orders worth a combined $30.5 billion in the first seven months of this year, almost 87% of their annual target.
KSOE, the intermediate shipbuilding holding company of Hyundai Heavy Industries Group, won $17.8 billion in new orders in the January-July period, already exceeding its annual target of $17.44 billion.
Samsung Heavy snagged orders worth $6.3 billion, or 71.6% of its annual target of $8.8 billion, over the same period, while Daewoo Shipbuilding won $6.43 billion. or 72.2% of its $8.9 billion target.
In the first six months alone, Korean shipyards won 9.94 million compensated gross tons (CGT) in shipbuilding orders, returning to the world’s top shipbuilder position for the first time in four years, according to the market researcher Clarkson Research Service.
China, Korea’s biggest rival, took second place with a total of 9.26 million CGT.
HIGHER STEEL SHEET PRICES, CHEAP ORDERS
However, Korean shipbuilders are seeing their profitability deteriorate, weighed down by higher steel plate prices and lower margins from cheap orders in the past.
Last month, KSOE reported second-quarter sales rose 7.2% from the first quarter to 4.19 trillion won ($3.2 billion) on the back of increased ship orders. , but remained in the red with 265.1 billion won in operating loss, although its shortfall narrowed. compared to a loss of 396.3 billion won in the previous quarter.
Samsung Heavy saw sales drop 3.9 percent in the quarter to 1.43 trillion won, while its operating loss widened to 255.8 billion won due to a delay in ship production ordered from Russia following the Russo-Ukrainian War.
The company said its biggest loss was also due to a 180 billion won one-time charge against a price hike in steel plate used for shipbuilding.
Daewoo Shipbuilding has yet to release its second-quarter results, but is widely expected to post a loss of at least 75 billion won.
The company’s loss could be worse than market expectations as it suffered from a 51-day strike by its contractors.
The walkout, which ended in late July, caused an output loss of about 816.5 billion won, according to industry officials.
Industry watchers have said the shipbuilding industry’s business practice of reflecting orders in profits after ships are delivered to buyers is also hurting their bottom line.
Revenues and profits from orders that Korean companies won in 2020 will start showing up in their earnings reports in the second half of this year.
After the second quarter’s “deep dive” or a huge one-time charge from steel plate prices, Korean shipbuilders are likely to show improved earnings from the third quarter at the earliest, officials said. industry.
Analysts said money-back guarantees (RGs), issued by Korea’s state-owned banks to help local shipbuilders in their efforts to secure orders, have also spurred companies to competitively engage in price cuts. to win orders.
Source: The Korea Economic Daily Global