Wed, Jan 30, 2019 - Page 11 News List

China pollution cleanup a boon for shipbuilders

INDIRECT DEMAND:A shift toward LNG in emerging markets is expected to lead to orders for gas carriers, the most expensive commercial ships to manufacture

Bloomberg

The world’s biggest shipbuilder sees China’s cleanup of its smoggy skies lifting prices of vessels this year.

As China prioritizes dealing with the smog that has famously blanketed Beijing and other big cities, the world’s second-biggest economy is increasingly turning to liquefied natural gas (LNG) as a replacement for coal for heating and other purposes, boosting imports of the cleaner fuel.

Hyundai Heavy Industries Co expects orders for carriers of the gas to lead to demand for new ships, CEO Sam H. Ka said.

“China’s need for LNG appears to have triggered the restart of some gas projects in the US, Australia and Qatar,” Ka said in a telephone interview from Seoul. “Our slots for LNG carrier construction are pretty much filled up until 2021.”

Surging demand for LNG in China, as well as in smaller emerging economies, has spurred energy explorers, including Royal Dutch Shell PLC and Total SA, to focus on investments in gas development projects.

The accompanying demand for carriers to transport the fuel is a bright spot for a shipbuilding industry that has struggled to win orders since crude oil prices slumped in 2014.

Qatar plans to order about 60 new LNG carriers, adding to the 50 it already owns, Qatari Minister of Energy and Industry Saad Sherida al-Kaabi said.

Shares of Hyundai Heavy yesterday gained as much as 2.5 percent to 146,000 won, the highest intraday price since Oct. 4 last year.

Ka said that he expects the rising demand to benefit the world’s top three shipyards, which are all based in South Korea.

Gas carriers are the most expensive commercial ships and take the longest time to build.

“This is a good start to the new year, with clear signs of strong demand for LNG carriers,” Shinyoung Securities Co analyst Um Kyung-a said in Seoul. “As more and more slots get filled with LNG carrier orders, it’s going to enable shipyards to raise prices for all types of vessels.”

Hyundai Heavy, Samsung Heavy Industries Co and Daewoo Shipbuilding & Marine Engineering Co, together with other smaller South Korean shipyards, won 94 percent of the 80 LNG carriers ordered worldwide last year, South Korean Ministry of Trade, Industry and Energy data showed.

The companies also accounted for 87 percent of very large crude carriers ordered globally.

These helped increase their order backlog by 25 percent last year and would allow them to raise prices for vessels, Ka said on Thursday last week.

The executive predicted that average prices for ships built by Hyundai Heavy and its rivals could climb 10 percent this year following a 10 percent increase last year.

Samsung Heavy received an order from Celsius Tankers in Europe to build two 180,000m3 LNG carriers for about US$375 million, the Seongnam, South Korea-based shipbuilder said in an e-mail yesterday.

Ka expects the global shipbuilding industry to continue on a gradual recovery over the next few years.

Orders could exceed 60 million gross tons, which measures the volume of space in a ship, rising from a little more than 55 million gross tons estimated for last year.

Hyundai Heavy could report better earnings for this year, helped by prices of steel plates that are expected to stagnate or rise moderately this year, Ka said.

Prices of the material, used to make the hull of ships, last year rose more than 30 percent, contributing to a nine-month net loss of 274.8 billion won (US$245.69 million) at the company, which is scheduled to report full-year results this week.

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