Shipbuilding Stocks Rebound on Order Resumption and Foreign Buying

Daewoo Shipbuilding & Marine Engineering Soars Over 8% Yesterday... Biggest Gain This Year
Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries Also Rise About 5%
Expectations for LNG Ship Orders in Second Half... Foreign Investors Return to Buying Trend

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Shipbuilding stocks are rebounding. Foreign investors have also turned to buying amid expectations that large-scale project orders, which had been stalled, will resume.

According to the Korea Exchange on the 26th, Daewoo Shipbuilding & Marine Engineering (DSME) closed at 18,400 won, up 8.24% from the previous trading day. This marked the largest gain this year based on the closing price. Korea Shipbuilding & Offshore Engineering and Samsung Heavy Industries, also considered the 'big three' shipbuilders, closed up 4.88% and 4.96%, respectively. Analysts suggest that as the frozen order outlook begins to thaw, foreign investors have started buying shipbuilding stocks.

Previously, the shipbuilding industry was expected to face significant impacts from the order cliff starting in the second quarter. As of April 2020, new ship orders worldwide totaled 3.82 million CGT (Compensated Gross Tonnage), a 61.6% decrease compared to the same period last year. This figure is 24.4% lower even compared to 2016, which was considered the most stagnant order market since the financial crisis. In the case of Korean shipbuilding, orders dropped by as much as 71.9%.

However, signs of LNG ship orders resuming have emerged, starting with DSME. Russian state-owned energy company Novatek recently selected DSME as the preferred negotiation partner, with an expected order for five icebreaking LNG carriers. Attention is also focused on the resumption of LNG ship slot (dock) reservation contracts with Qatar Petroleum (QP), a Qatari state-owned company, scheduled for the end of this month. All three major shipbuilders participated in bidding for this project, which could involve up to 120 vessels. Currently, the price for a 174,000㎥ LNG carrier is $186 million (approximately 230.7 billion won) per ship, so even securing the minimum 60 vessels would amount to 14 trillion won.

The recovery in oil prices is also a positive factor. On the 25th (local time), West Texas Intermediate (WTI) crude oil for July delivery closed at $33.19 per barrel on the New York Mercantile Exchange (NYMEX). Although it fell 0.2% from the previous day, it had already risen about 13% over the past week. Since a decline in oil prices tends to lower global orders for commercial and offshore vessels, the steady recovery is seen as favorable for the shipbuilding industry.

Foreign investors have also returned to buying. As of the previous day, foreigners net purchased 1.5 billion won worth of DSME shares, ending a 12-trading-day net selling streak since the 7th. Korea Shipbuilding & Offshore Engineering and Samsung Heavy Industries also saw net purchases of 11.5 billion won and 6.2 billion won, respectively. Hyun Kim, a researcher at Meritz Securities, said, "A moderate increase in cargo volume is expected due to China's economic stimulus," adding, "If China's raw material trade normalizes, the rebound will likely start in the LNG carrier sector."

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