The big three Korean shipbuilders – Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering – have reportedly won a total of US$ 6 billion in the first quarter alone in 2018, reaching 20% of this year’s sales goal. Accordingly, it is expected that 1Q 2018 sales, which are slightly below expectations, are likely to be nothing more than growing pains and will lead to sales growth in the second quarter.
Combined sales of the Big Three are estimated to have fallen 41% YoY to KRW 5.6 trillion, and the operating loss to KRW 150bn, falling below the projected operating loss of KRW 35bn. This is largely due to a further drop in profitability due to the stronger Korean won.
Meanwhile, Daewoo Shipbuilding & Marine Engineering and Hyundai Mipo Dockyard expect a surplus since their sales declines are relatively small.
In 4Q 2017, the Big Three reflected provisioning for new construction orders as much as changes in the exchange rate of 8%. Provision for construction losses is generally reconciled on the deficit project. Hyundai Heavy Industries Group received a total of US$3.5bn in the fourth quarter, reflecting a provisioning loss of KRW
310bn, which corresponds to an 8% drop in the KRW/USD rate.
Likewise for Samsung Heavy Industries and DSME, the 1Q 2018 KRW/USD rate is not much different from 4Q, while the rise in the cost of the vessels is only 3 to 4%. In order to offset the KRW depreciation, it is necessary to raise COGS by more than 8% which is fallen short of. Therefore, it is estimated that the amount of construction received in 2018 will reflect a provisional loss of about 5%.
It is expected that shipbuilding prices will pick up from Q2 and profitability will improve with lower fixed cost burdens and lower possibility of provisioning for construction losses, thus causing a sales rise. Assuming such an optimistic scenario, if the KRW depreciates, the existing provision for losses on construction will be reversed.
On the other hand, the improvement in orders that began this year is largely driven by the popularity of LNG carriers. Daewoo Shipbuilding & Marine Engineering won eight orders out of the 13 orders received by the Big Three. Hyundai Heavy Industries and Samsung Heavy Industries followed by winning three and two orders respectively. Considering that the total order volume of LNG carriers last year was 14, the boom in this sector is becoming more evident than ever.
Apart from LNG carriers, orders for mid- to large-sized feeders and container vessels are also noticeable. Container shipbuilding orders are on the rise for the following reasons: the increase in freight volume has exceeded the fleet growth rate from 2017; the Panama Canal has been expanded to accommodate 14,000 TEU-class container ships; and due to the increased demand for new shipbuilding orders because of stricter environmental regulations.

Korean-Products.com | Blog Magazine of Korean products, brands and Goods