[Click e-Stock] Iran Crisis and Environmental Regulations... "Increase in Shipbuilding Orders"

DS Investment & Securities Report

On March 16, DS Investment & Securities forecasted that the tanker ship (crude oil carrier) market is expected to remain strong for the time being, as market-intrinsic conditions coincide with external geopolitical factors. Freight rates continue to stay at high levels due to both geopolitical tensions in the Middle East and a shortage of vessel supply. The company also analyzed that demand for replacing aging vessels is likely to expand further due to strengthened environmental regulations. Accordingly, DS Investment & Securities anticipates that the increase in orders for eco-friendly ships will become a new growth engine for the domestic shipbuilding industry.

Tanker Ship

Recently, tanker ship freight rates have undergone some corrections but remain at very high levels. According to DS Investment & Securities, as of March, contracts for Very Large Crude Carriers (VLCCs) and Suezmax tankers are being made at levels 5 to 15 times higher than the breakeven point (BEP, approximately 20,000 to 30,000 dollars per day). This is attributed to two factors: first, the extension of transport routes due to the prolonged conflict in the Middle East, and second, the limited number of ships actually available for operation owing to the increase in aging vessels and stricter regulations.

The tanker ship market is showing a trend similar to that seen during the boom period of the container ship industry. At that time, a combination of improved cash flow for shipping companies, reinforced environmental regulations, and the timing for replacing aging vessels led to a surge in orders for eco-friendly ships. Currently, the high freight rates in the tanker ship market have increased shipping companies’ capacity to place orders, and the need to comply with environmental regulations is also growing, thereby raising the possibility of expanded new orders.

In particular, the carbon regulations set by the International Maritime Organization (IMO) are cited as a key factor that will trigger structural changes in the tanker ship market. Beginning in 2028, VLCCs are expected to face a minimum daily carbon cost of 3,210 dollars. If calculated over a 20-year operating period, this would amount to total costs exceeding 20 million dollars. From the perspective of shipping companies, this makes it economically more favorable to place new orders for eco-friendly vessels rather than maintain aging ships.

Kim Daeseong, a researcher at DS Investment & Securities, stated, "If the detailed guidelines for carbon regulations are further specified in the future, we expect a major cycle of new eco-friendly tanker ship orders to occur, coinciding with the timing for replacing aging vessels." He further analyzed that if an eco-friendly ship ordering cycle begins in the tanker ship market, ship prices could rise by approximately 20 percent, which would likely lead to improvements in both sales and profitability for domestic shipbuilding companies.

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