Positive Signs for LNG Ships in Qatar Project... Should We Consider Investing in Shipbuilding Stocks?

Starting Orders for 2.4 Trillion KRW LNG Carrier Project
Brokerages Simultaneously Increase Sector Weightings

[Image source=Yonhap News]

[Asia Economy Reporter Myunghwan Lee] A favorable wind from Qatar is blowing through the domestic shipbuilding industry. This is because domestic shipbuilders have started receiving orders in the 'Qatar Project,' which involves a massive order of liquefied natural gas (LNG) carriers worth $19 billion (approximately 24 trillion KRW). Securities firms have unanimously recommended increasing the weighting of the shipbuilding sector.

According to the industry on the 9th, Daewoo Shipbuilding & Marine Engineering announced on the 7th that it had secured an order for four 174,000㎥ LNG carriers from a Korean consortium consisting of H Line Shipping, Pan Ocean, and SK Shipping. The contract amount reaches a total of 1.0734 trillion KRW. Korea Shipbuilding & Offshore Engineering also disclosed on the same day that it had received an order for two 174,000㎥ LNG carriers from a European shipping company for a total of 537.5 billion KRW.

It is viewed by the securities industry that these orders are part of the Qatar Project. Qatar, the world's largest LNG producer, is currently expanding its LNG production capacity from about 77 million tons to 126 million tons by 2027. In line with this, Qatar Petroleum (QP), the state-owned oil company, signed a slot contract for the construction of over 100 LNG carriers with the three major domestic shipbuilders in June 2020. A slot contract means pre-booking dock space for new vessels.

The risk of 'low-price orders' has also been somewhat alleviated. After the slot contract, the rise in raw material prices over two years raised concerns that orders placed under the 2020 conditions would result in losses. However, the average price per LNG carrier contracted by Daewoo Shipbuilding & Marine Engineering is 270 billion KRW, which is not significantly different from the current average ship price of 285.5 billion KRW.

Securities firms have unanimously evaluated the shipbuilding industry positively. Kwangsik Choi, a researcher at Daol Investment & Securities, said, "The confirmation of the new ship price at $215 million (approximately 270 billion KRW) is a positive factor that resolves risks," adding, "As LNG purchase contracts are increasing, and LNG carrier slots from 2026 onward are scarce, the bargaining power on prices will be further enhanced," recommending an increase in the weighting of the shipbuilding sector.

The high entry barrier in the LNG carrier market is also an encouraging factor. Recently, a Chinese state-owned shipbuilder entered the market by securing LNG carrier orders from Middle Eastern shipowners, but it is not considered a significant threat. Youngsoo Han, a researcher at Samsung Securities, analyzed, "From the shipowners' perspective, LNG carriers are a sector where they hesitate to place orders with shipbuilders lacking construction experience," and "The entry of new participants will not affect the order prices of existing Korean shipbuilders."

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