Shipbuilding Industry: More Time Needed
Although shipbuilding order momentum remains sluggish, there are signs that the shipping industry will make a turnaround. Given that the economic outlook remains unstable, however, shipowners investment decisions are being delayed. We believe that an industry recovery is possible from 1H21.
Shipbuilding orders remain lackluster, but hopes for turnaround remain in play
Due to Covid-19, orders at Koreas Big-3 shipbuilders were sluggish in 1H20. To date, total commercial vessel orders at the three domestic shipbuilders are estimated at W3.42bn, which is only 48% of the 1H19 level.
However, despite the economic crisis, the shipping industry may have already reached a bottom. In particular, we note that tanker and container ship operations have recently shown recovery trends, with freight rates turning to an uptrend since June.
Possibility rising for shipping industry turnaround; however, premature to expect new order growth
With both operation and freight rates improving, we believe that new orders will expand and investor interest in shipbuilding plays will increase going forward. If positive trends continue, orders may improve from September. Of note, LNG orders are expected from Qatar from 1H21.
However, it looks too early to adopt an overweight stance. Bids for container ships and tankers remain lackluster, with the majority of tenders still limited to LNG carriers. As the bidding process usually takes 3~6 months, a significant order rebound is unlikely until 3Q21.