KSOE expects limited impact on order backlog amid COVID-19

A LNG-propelled container vessel built by Hyundai Samho Heavy Industries / Courtesy of Hyundai Samho

By Nam Hyun-woo

The ongoing COVID-19 pandemic will have a limited impact on Korea Shipbuilding & Offshore Engineering's (KSOE) order backlog, the shipbuilder said Wednesday. KSOE is an intermediate holding firm controlling Hyundai Heavy Industries and other shipbuilding units of Hyundai Heavy Industries Group.

During a conference call, the KSOE said it is experiencing “no setbacks in production” stemming from the COVID-19 outbreak, but is anticipating a potential impact on its order backlog.

“There could be anticipations that KSOE will not be able to meet its order target for this year, and we also understand such concerns,” the company said during the call. “Instead of changing our order target hastily just after the first quarter, we believe it is time to closely monitor the market situation.”

According to the company, its shipbuilding units seek to secure orders worth $19.5 billion this year, slightly contracted from last year's $19.62 billion, despite the COVID-19 outbreak.

This is a contrast to the market's negative outlook on the potential global vessel orders for this year. After the pandemic, market tracker Clarksons Research downgraded its outlook on this year's global order potential to 39.1 million gross tonnages, down 45 percent from its previous forecast of 71.3 million in gross tonnage as of last September.

“In a breakdown of Clarkson Research's outlook, however, the decline in the orders for LNG, LPG, tankers, containers and our other main vessels are relatively mild. Thus, we believe a better guidance on our orders will be available after the second quarter,” the company said.

The company said private shippers are monitoring the market circumstances currently, as the financial slowdown, weak oil price, volatile shipping price and other factors are displaying mixed indications on the shipbuilding market. Despite the circumstances, KSOE said shippers are expecting a cut in ship prices, thus a recovery in the financial market will spur them to place new orders.

Over its LNG carrier business, the KSOE also expected no major delays in major LNG projects across the world, since many of them are state-run or massive projects, thus authorities will not take action lightly to postpone placement of new orders, as delays will incur immense losses for them.

“Large LNG projects are going ahead as scheduled,” the company said. “Since most projects from which we are seeking to win orders are at their final stage, there will be no major delays in winning orders for LNG carrier projects. There are some difficulties in having face-to-face meetings … but we don't see that as a major setback,” the company said.

Another rosy outlook for the company is Qatar Petroleum's LNG project, which is expected to account for nearly 60 percent of the global LNG shipbuilding capacity. In the project, 60 to 120 LNG carriers are expected to be ordered, and 40 to 80 of them will be assigned to Korean shipbuilders, the KSOE said. The KSOE did not include this in its order target for this year, saying it needs to take a conservative stance.

This year, the company plans to deliver 18 LNG carriers ― 12 from Hyundai Heavy Industries and six from Hyundai Samho Heavy Industries.

The company also expressed its confidence that the COVID-19 outbreak will not hamper it from meeting this year's sales target.

“There will be no impact on this year's sales on Hyundai Heavy Industries and Hyundai Samho Heavy Industries. For Hyundai Mipo Dockyard, there could be a slight impact due to its fast shipbuilding turnover, but the unit logged relatively good orders in the first quarter, thus the impact will be limited.”

The KSOE logged 121.7 billion won in consolidated operating profit in the first quarter, up 251.7 percent from a year earlier. Its sales also grew to 3.94 trillion won, up by 20.4 percent from 3.28 trillion won, during the same period. Three units under KSOE won 19 vessel orders in the first quarter, worth $1.2 billion.