April 14, 2024


World Business Inquiries

Korean shipbuilders nervous as oil prices turn negative

3 min read

(Yonhap) via The Korea Herald

SEOUL — Jitters are being felt among Korean shipbuilders as the price of US oil turned negative for the first time in history this week, coupled with reduced demand for crude oil and global shipments driven by the novel coronavirus pandemic.

Market conditions in the shipbuilding industry around the world are at their worst.

In the first quarter of this year, global orders for ships fell 78 percent year-on-year to 2.33 million compensated gross tons. Here, only two liquefied natural gas carriers — the flagship of Korean shipbuilders — were ordered during the period, according to the Korea Offshore & Shipbuilding Association.

Clarksons Research forecast 756 ships to be ordered this year, down 23.4 percent from last year’s orders.

“With the global economic slowdown since the spread of COVID-19 and the sharp drop in oil prices, the majority of shipowners are putting their order plans on hold,” said Choi Jin-myung, an analyst at NH Investment & Securities.

On Monday, the US benchmark West Texas Intermediate crashed into negative territory for the first time in history at minus $37.63 per barrel. Brent oil prices — the key benchmark price for crude oil globally — have plunged to around two-decade lows.

The order forecast for offshore plants that produce crude oil on the sea is also dim. Orders for the plants are usually on the rise when international oil prices are above $50 to $60 per barrel due to improved profitability. In this era of plummeting oil prices, shipowners are unlikely to place orders because drilling will cost them more, according to industry watchers.

Shipbuilding shares are on the decline.

Korea Shipbuilding & Marine Engineering closed at 75,000 won ($60.90), down 1.69 percent from the previous day. Samsung Heavy Industries and Hyundai Mipo Dockyard are also bearish.

Amid the prolonged difficulties in the industry, Hanjin Heavy Industries & Construction, whose largest shareholder is Korea Development Bank, was put up for sale. Hanjin Heavy’s capital was impaired in February last year due to insolvency at its subsidiary Subic Shipyard in the Philippines.

Industry watchers said there will be few companies to take over the struggling shipbuilder because a megasized merger between HHI and Daewoo Shipbuilding & Marine Engineering is already underway in the industry, and the shipbuilding business situation is sluggish.

“Small and medium-sized ships are now completely losing ground to China in terms of construction competitiveness,” an industry source said. “Few shipbuilders will consider acquiring Hanjin Heavy Industries.”

Shareholders of Hanjin Heavy have decided to push for open sales through the market within this year. The sale price will materialize through bidding competition.

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