South Korea’s Samsung Heavy Industries signed a total of US$5.4 billion worth of orders this year, to ensure its production volume in the next four years. However, in the field of container ships, the shipbuilding enterprise “no income”, some market analysts believe that it should increase the diversity of ship types.
So far this year, Samsung Heavy Industries has received orders for a total of 24 ships, including 21 LNG carriers, two Very Large Liquid Ammonia Carriers (VLACs) and one shuttle tanker, with a total value of US$5.4 billion, realizing 56 percent of this year’s US$9.7 billion order target. The shipbuilder’s current hand-held orders is US$31.9 billion, down US$1.3 billion from the start of the year.
It is worth noting that Samsung Heavy Industries hand-held container ship orders fell sharply.So far this year, its container ship hand-held orders decreased by US$2.2 billion from US$7.7 billion at the end of last year to US$5.5 billion, mainly because Samsung Heavy Industries did not receive any new orders for container ships this year. In contrast, South Korea’s other two major shipbuilders, Hanwha Ocean and HD Hyundai, have both received orders for container ships.
There is another view that Samsung Heavy Industries is not worried about the lack of orders for container ships, as it has already won a number of contracts for LNG carriers, which have higher value-added and are priced higher than containerships. And the construction of LNG carriers can improve the output ratio in the case of limited production capacity.
However, this “order selection strategy” will only be effective if the LNG market continues to boom. Due to the cyclical nature of the shipbuilding industry, the market cycle varies for different types of ships. Chinese shipbuilders are dominating the ultra-large container ship market by expanding their shipyards, and in the long run, focusing on LNG carriers may weaken Samsung Heavy Industries’ competitiveness. the LNG carrier market is still hot, but Samsung Heavy Industries may face the risk of a shortage of orders if the market suddenly turns cold.
In addition, the construction cycle for LNG carriers is longer compared to container ships. It is widely recognized in the market that shipbuilders should diversify their risks and should not focus on a single ship type, as fast construction and shorter dock cycles are essential to remain competitive.
Chinese shipbuilders have “monopolized” the ultra-large container ship market.This year, all the 20,000 TEU ultra-large container ship orders are obtained by Chinese shipbuilders. As of September, Chinese shipbuilders have received orders for 20 container ships of more than 20,000 TEU, 10 of which were awarded to Hengli Heavy Industries and the other 10 to Jiangsu Hantong Ship Heavy Industry Co., Ltd(HT).
Industry insiders predict that orders for LNG carriers may decrease next year due to the decline of LNG carriers’ rentals. And Chinese shipbuilders are already preparing for orders of other ship type in addition to LNG carrier in order to fill the order gap in the future.
Han Seung-han, an analyst at SK Securities, pointed out that China’s container ship technology has caught up with South Korea’s, and that South Korean shipbuilders no longer have an advantage in competitiveness in the container ship market in light of rising shipbuilding costs in South Korea. “Looking ahead, the strategy of Korean shipbuilders to focus on LNG carriers is not desirable,” he emphasized.
Samsung Heavy Industries’ focus on LNG ship orders has helped avoid a decline in profitability. The shipbuilder has sustained losses from 2015 through 2022 and will not return to profitability until 2023. Analysts believe that Samsung Heavy Industries is ignoring container ship orders because it has created an optimized construction environment for LNG ships in recent years, and a shift to other ship types could lead to a decline in profitability.
Up to now, Samsung Heavy Industries this year received orders worth a total of US$5.4 billion, only 56% of this year’s US$9.7 billion order target. In contrast, South Korea’s other two shipbuilding giants have pulled away from Samsung Heavy Industries in terms of order intake this year.
HD Hyundai has already received orders for 169 new ships worth US$18.84 billion this year, far exceeding its annual order target of US$13.5 billion. Hanwha Ocean has received orders for 37 new ships worth about US$7.35 billion, more than double the total annual order book for 2023 (US$3.52 billion).
In response, a Samsung Heavy Industries executive said, “We are negotiating new ship orders such as FLNG and LNG carriers, and will do our best to achieve this year’s order target.” It is understood that Samsung Heavy Industries expects to be able to receive the Coral FLNG project in Mozambique in the fourth quarter of this year, with a contract value of $2.5 billion.