The domestic stock market experienced a correction due to the Dec. 3 martial law incident. The shipbuilding industry was no exception. However, iM Securities noted on the 11th that considering the high exchange rate and the ordering of liquefied natural gas (LNG) carriers, the shipbuilding industry is expected to perform well in 2025.
Byun Yong-jin, a Research Institute at iM Securities, said that concerns about some industries, such as defense, are somewhat rational. This is because there is no reason for buyers to hastily proceed with investment decisions that involve a massive budget when the political situation in Korea may change.
Byun noted that the shipbuilding industry should adjust expectations regarding special vessels (such as warships). He said, “If a regime friendly to China and Russia comes to power, cooperation with the U.S. Navy may somewhat diminish, but it is better to lower expectations for the special vessel business from the outset.”
Despite concerns regarding the special vessel business, Byun predicted that shipyards would exceed market expectations. First, the high exchange rate works favorably for export-driven shipyards. He said, “As an extreme example, during the 1997-1998 IMF crisis, the prices of newbuilding vessels were declining, but domestic shipyards benefitted from the soaring exchange rate, and their stock prices also rose.”
According to Byun, shipyards usually estimate the exchange rate conservatively in their business plans. He said that this year’s planned exchange rate was in the mid-1,200 won range on average. Byun estimated, “The planned exchange rate for 2025 is also unlikely to exceed the mid-1,300 won range,” adding that “an exchange rate above 1,400 won will certainly positively impact the performance of shipyards.”
Byun emphasized that the ordering of LNG carriers should also be closely monitored. This is due to the likelihood that LNG export projects, which were paused under the administration of U.S. President Joe Biden, will resume, leading to increased orders for LNG carriers starting in 2025.
Byun stated, “Since the beginning of this year, 75 orders for LNG carriers have been placed, with China securing 24 vessels due to the Qatar supply and South Korea securing about 50.” He continued, “With the resumption of U.S. LNG projects from 2025 to 2028, we anticipate an annual average of 68 orders for LNG carriers,” and pointed out that “unlike this year, there will be no orders for LNG carriers from China in 2025, allowing South Korean shipyards to monopolize the market.”
If domestic shipyards secure orders for LNG carriers, which are classified as high-value vessels, it will positively impact their performance. Byun predicted that the proportion of LNG carriers in domestic shipyards’ revenue, which currently averages 50.9% this year, will increase to 66.3% by 2026.
Byun noted, “It is also important that the shipbuilding industry is not an industry that is affected by concerns about a declining domestic economy,” and remarked that “the more uncertain the times, the more attractive the shipbuilding industry becomes.”
Source: CHOSUNBIZvvvvv
