Shipbuilding Industry "8 Trillion Won Is Insufficient, Support Items Must Be Diversified" (Comprehensive)

COVID-19 and Low Oil Prices Combine
Shipbuilding Industry Faces Worst Crisis

Liquidity Provided for Operating Funds
Demand to Expand Advance Payment Refund Guarantees
"Additional Measures Will Be Considered"

Sung Yun-mo, Minister of Trade, Industry and Energy, is speaking at a meeting with the shipbuilding industry regarding the response to the novel coronavirus disease (COVID-19) held on the 27th at EL Tower in Seocho-gu, Seoul. Photo by Moon Ho-nam munonam@

[Asia Economy Reporters Moon Chaeseok and Park Soyeon] Although the government announced that it would inject 8 trillion won to support liquidity such as production financing in the shipbuilding industry, the industry complains that it is insufficient. They are appealing to diversify the scope of support to include not only production financing but also operating funds loans secured by ship delivery payments, working capital, etc., and to increase the scale of issuance of Refund Guarantee (RG).

On the 27th, Sung Yun-mo, Minister of Trade, Industry and Energy, held a meeting with representatives of major shipbuilders and equipment manufacturers at L Tower in Seocho-gu, Seoul. Attendees included Lee Seong-geun, President of Daewoo Shipbuilding & Marine Engineering, Ga Sam-hyun, President of Korea Shipbuilding & Offshore Engineering, Nam Jun-woo, President of Samsung Heavy Industries, Jang Yoon-geun, President of STX Offshore & Shipbuilding, Jeong Dae-seong, President of Daehan Shipbuilding, and Lee Soo-geun, President of Daesun Shipbuilding.

At the meeting, representatives of shipyards and equipment companies expressed that the government’s measures announced on the 23rd at the Crisis Management Meeting, such as continuous supply of about 8 trillion won in production financing and timely issuance of RG, are insufficient. The industry requested the government to provide ▲ liquidity support such as production financing ▲ operating funds loans secured by ship delivery payments ▲ extension of production financing maturity and expansion of working capital supply ▲ maintenance and timely issuance of RG ▲ simplification of entry procedures for foreign technical experts.

Among these, the industry believes that support for RG issuance is necessary as the risk in the shipbuilding industry has increased due to the COVID-19 pandemic. The current RG issuance limit is 200 billion won, but increasing this limit was not included in the government’s measures.

The reason the shipbuilding industry is appealing for additional support despite the government’s announcement is that it is suffering from a severe order drought and could face liquidity shocks at any time.

As of last month, the total order backlog of domestic shipbuilders was 21.18 million CGT (Compensated Gross Tonnage). Korean shipbuilders are operating with secured orders for 1 to 2 years of construction. The problem is that amid the global freeze in orders due to the COVID-19 pandemic, the gap between Korea, which has fallen to second place, and China, which is first, is widening. In the first quarter, Korea secured 400,000 CGT in orders, less than half of China’s 920,000 CGT. Until the end of last year, Korea and China were neck and neck with 7.12 million CGT (36% of the world) and 7.08 million CGT (35% of the world), respectively, but Korea fell significantly behind in the first quarter of this year.

Moreover, due to reduced crude oil demand, global shipping companies have cut orders for Very Large Crude Carriers (VLCC), putting the domestic shipbuilding industry’s liquidity at risk. Initially, VLCC orders were expected due to the sharp drop in oil prices, but with the demand plunge caused by COVID-19 and the recent decline in crude oil demand and global cargo volume, the possibility of order delays or cancellations has increased.

Orders for offshore plants, which are oil drilling equipment, are also scarce. Actual ship orders have also significantly decreased. According to Clarkson Research, a UK shipbuilding and shipping market analysis firm, the cumulative global ship orders in the first quarter of this year were 2.33 million CGT, a 71.3% decrease compared to 8.1 million CGT in the first quarter of last year. To make matters worse, bank loans and bond issuance have become difficult, so the industry is expecting government-level liquidity supply measures to prepare for the prolonged COVID-19 situation. An industry official said, "By April, about 30-40% of the annual order target should be achieved, but currently, it is less than 10%. Large projects have not been ordered, and LNG ship orders are also being delayed, so securing liquidity is the top priority."

The government also somewhat agrees that additional support is necessary. It diagnosed that if the COVID-19 situation prolongs, there could be delays in delivery due to reduced container ship cargo volume, delayed final investment decisions (FID) on major projects leading to decreased new orders for LNG and container ships, delays in inspection approvals due to restrictions on the entry of shipowner supervisors and overseas engineers, and commissioning disruptions.

Minister Sung also said, "The shipbuilding industry has responded well to COVID-19, with no production disruptions and liquidity in better condition than other industries," but expressed concern that "if COVID-19 prolongs and the global recession worsens, the industry could face an order cliff worse than in 2016." He added, "We have prepared support measures focusing on urgent needs such as production financing and RG support, and will strengthen communication through the Industrial Crisis Response Team within the Emergency Economic Central Countermeasures Headquarters to review necessary response measures."

This content was produced with the assistance of AI translation services.