South Korea’s three major shipbuilding giants– HD Korea Shipbuilding & Offshore Engineering (HD KSOE), Hanwha Ocean, and Samsung Heavy Industries are all expected to realize a surplus in operating profit in 2024, according to an analysis of the securities industry’s most recent three-month forecasts by Yonhap infomax, a financial institution owned by Yonhap News Agency, on Jan. 19th.
This is the first time in 13 years since 2011 that South Korea’s three major shipbuilding giants have synchronized their annual profits. During this period, at least one of the three companies was in the red every year due to the global shipbuilding recession.
HD KSOE, the intermediate shipbuilding holding company of the Hyundai Group, is expected to post a 19.4% year-on-year increase in sales to KRW 25.426 trillion and a 407.9% increase in operating profit to KRW 1.438 trillion. The increase in the proportion of high-value-added ships, including ammonia carriers, in the order book contributed significantly to the improvement in performance. Last year, the company received orders for 181 vessels, 50 of which were liquefied petroleum gas (LPG) and ammonia carriers.
Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering, DSME) has achieved annual profitability for the first time in four years since 2020. However, the Korean industry believes that the 51-day-long strike in 2022 led to a smaller improvement in its operating profit.
Samsung Heavy Industries’ sales are expected to grow 23.34 percent to 9.8791 trillion won, and operating profit is expected to increase 102.37 percent to 472.1 billion won. In 2024, the company returns to profitability for the first time in nine years and is expected to achieve sales of 9.7 trillion won and operating profit of 400 billion won.
The collective profitability of the three major shipbuilding giants is due to the increase in ship orders and construction brought about by the booming shipbuilding industry. According to the Korea Offshore & Shipbuilding Association (KOSHIPA), South Korea’s new ship orders totaled 19.8 million CGT (compensated gross tonnage) last year, up 9.1 percent year-on-year. Deliveries reached 11.27 million CGT, the largest increase (22.1%) among major shipbuilding countries.
The consistent rise in newbuilding prices over the last four years also drove the performance. Last December, the Clarkson Newbuilding Price Index stood at 189.2, close to 99% of its all-time high (191.5).
The recent high exchange rate environment may also have contributed to the good performance of the shipbuilding industry, as shipbuilding contracts are mainly paid in US dollars. Recently, Korea Investment Securities analyzed in the Hanwha Ocean report that “a rise in the average exchange rate of the Korean Won against the U.S. Dollar is expected to lead to an increase in operating profit of more than KRW 33.4 billion in the fourth quarter of 2024”.
South Korea’s shipbuilding industry is expected to continue to prosper in 2025, with Donald Trump’s second term in office in the U.S. as a positive factor. Demand for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) shipments is expected to increase due to Trump’s emphasis on conventional energy and fossil fuel industries. Additionally, Trump’s call for increased cooperation in maintenance, repair, and overhaul (MRO) operations is also promising for this sector.
However, there are also suggestions in the Korean industry that the three major domestic shipbuilding giants should not be stuck in their ways, as the current prosperity is mainly due to external factors. Lee Shin-hyung, former president of the Korea Shipbuilders Association and professor of shipbuilding and marine engineering at Seoul National University, said: “The success of the shipbuilders is more a result of external factors such as environmental trends, the phenomenon of high exchange rates and the situation in the Red Sea. This year’s favorable trend is expected to be maintained to a certain extent, but the current situation should not be viewed in a short-sighted manner, and efforts should be increased to ensure future growth momentum.”