LNG Ships Starting to Drive 'Price Surge'

Hyundai Heavy, Contract Worth About $200 Million per Ship
New Ship Prices Show Clear Recovery
Likely to Rise Further with Steel Price Increase

A 174,000㎥ class LNG carrier built by Hyundai Heavy Industries and delivered last year. Photo by Korea Shipbuilding & Offshore Engineering

[Asia Economy Reporter Choi Dae-yeol] Hyundai Heavy Industries recently signed a liquefied natural gas (LNG) carrier construction contract at $199.6 million per vessel. LNG carriers are representative high value-added ships, and the contracted vessels are known to be eco-friendly ships that improve energy efficiency and reduce carbon dioxide emissions below standard levels. It was reported that the price per LNG carrier currently under discussion with other clients is around $210 million. Despite the overall rise in ship prices due to a series of orders from global shipping companies this year, the newbuilding price of LNG carriers, which had been slow to increase, has recently shown a clear recovery.

According to Clarkson Research, a shipbuilding and shipping market analysis firm, the newbuilding price of LNG carriers, which hovered around $185 million in 2019 and remained at a similar level until early this year, rose to $193 million in July. It is analyzed that the LNG carrier newbuilding price, which had been stagnant, began to move as orders concentrated on Korean shipyards equipped with advanced technology this year.

LNG carriers require a certain level of technical capability for LNG storage and containment, so mainly large Korean shipyards or some Chinese shipyards secure orders. The number of LNG carriers ordered in the first half of this year increased more than fourfold compared to the same period last year, with Korean shipyards taking 94% of the orders. Since domestic shipyards have filled their slots (shipbuilding workspace) to some extent, they are establishing conditions to receive fair prices and sign construction contracts without being unilaterally pressured during price negotiations.

Other ship types have already shown a clear upward trend for several months. Container ships, whose orders surged due to expectations of cargo volume recovery and environmental regulations, have led the overall ship price increase this year, while prices of newbuildings and secondhand vessels such as very large crude carriers (VLCCs) and petrochemical product carriers (PCs) have also risen. Recently, a VLCC was contracted for construction at over $100 million, the first time in seven years since mid-2014. The newbuilding price index compiled by Clarkson stands at 147 this month, up more than 10 points compared to the beginning of the year.

Additionally, steel price increases are forecasted for the second half of the year following the first half, which is expected to further push up ship prices. Typically, the price of heavy plates (thick steel plates over 6mm used in shipbuilding) is estimated to account for about 20% of the shipbuilding cost. Recently, steel companies have proposed prices 40-50% higher than in the first half of this year, and a tug-of-war over supply prices is ongoing. Accordingly, the industry expects some price increases to be inevitable and reflected in future ship prices.

Researcher Kim Hyun of Meritz Securities explained, "The shipbuilding industry's strategy for the second half of the year will focus on securing sufficient orders for more than two years in advance and pursuing price and profit-centered orders that pass on rapid cost increases to ship prices." He added, "It is realistic to reflect cost increases in advance and then use them in price negotiations with new clients."

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