As China's shipbuilding industry has been aggressively expanding orders for liquefied natural gas (LNG) carriers since the start of the year, some analysts say the trend is paradoxically serving as a lever that boosts Korean shipbuilders' bargaining power on prices. The reasoning is that as major Chinese shipyards burn through construction slots by taking on large volumes of low-priced orders through delivery after 2029, Korea will enjoy a dominant position for the high-value orders expected to pour in.
According to the shipbuilding industry and the financial investment industry on the 13th, Samsung Heavy Industries, HD Korea Shipbuilding & Offshore Engineering, and Hanwha Ocean dismissed concerns about a China-led supply glut during recent earnings conference calls, and instead interpreted it as an opportunity to raise prices and improve profitability.
China's Hudong-Zhonghua Shipbuilding and Jiangnan Shipyard each won orders last month for four LNG carriers from shipping companies TMS Cardiff Gas and Shell. As Chinese shipyards launched a relay of orders from the start of the year on the back of price competitiveness roughly 10% cheaper than Korea, some in the industry voiced concerns that Korea's home turf for LNG carrier orders—where it has a strong edge—could be eroded, pushing prices down and weakening profitability.
According to Clarksons Research, the ship new building price for a 174,000-cubic-meter LNG carrier peaked at $265 million in Feb. last year, then turned downward and has stayed around $248 million for the past four months, showing a weak trend.
◇ "China's low-price slot depletion boosts Korean price bargaining power"
In this context, Samsung Heavy Industries said the wave of low-priced LNG carrier wins by Chinese shipbuilders is actually "a boon for Korean shipbuilders." According to Korea Investment & Securities Co., Samsung Heavy Industries said during its fourth-quarter earnings call on the 31st of last month, "As Chinese shipyards' Qatari volumes are scheduled through deliveries in 2030–2031, slots in China are being used up," adding, "Korea will capture the benefits from the upcoming U.S. volumes."
This is being interpreted as potentially strengthening Korean shipyards' negotiating power. Samsung Heavy Industries said, "We expect domestic shipyard slots to tighten as well, so LNG carrier prices are likely to rise before we head into the second half of the year," and "We will use this opportunity to focus on U.S. projects." The explanation is that as China's low-price slots are depleted, shipowners' options narrow to Korea, raising the likelihood of price increases.
Hanwha Ocean also said the impact of China-led volume offensives would be limited. On its conference call, Hanwha Ocean said of concerns about low-priced orders from China, "There are factors by which prices being contracted recently in China put downward pressure on Korea's order prices," but added, "We see the volumes that can go to China as limited in the market."
It went on to say, "Even if China has capacity it can supply, if market demand exceeds a certain level, the linkage between Korean construction prices and China will weaken." In other words, if orders pour in beyond what China can absorb, shipowners will ultimately have no choice but to follow Korean shipyards' pricing policies, signaling a decoupling.
HD Korea Shipbuilding & Offshore Engineering dismissed China's threat by emphasizing market differentiation and the technology gap. On its conference call, HD Korea Shipbuilding & Offshore Engineering said, "China's Hudong-Zhonghua Shipbuilding says it can produce 30 ships a year and Jiangnan Shipyard close to 10, but in reality it is hard to see them using all this capacity," adding, "In the case of Jiangnan, although it is working hard, it still lags Korea in terms of quality and technology."
It added, "In fact, in international tenders that are not Chinese volumes, there is a tendency for Chinese shipbuilders to be excluded," and said, "For example, for recent projects such as Cheniere, Mozambique, and Equinor, Chinese shipbuilders' participation continues to be excluded, so Korean shipyards' market share will remain intact."
◇ More than 80 LNG carrier orders expected this year… focus on U.S. projects
The next big prize the three companies have in common is the United States. That is because massive LNG project investments were finalized last year in line with the Donald Trump administration's policy to expand energy exports. In particular, U.S.-origin projects can also be expected to have a "ton-mile" effect, where longer transport distances require more ships.
Oh Ji-hoon, an analyst at IBK Securities, explained, "Typically, one LNG carrier is needed to transport 1 million tons of LNG, but when shipping from the United States to Asia, the distance is longer, so 2.2 to 3 ships are needed." The capacity of global LNG liquefaction plants for which final investment decisions were made last year is 84 million tons per year, of which U.S. volumes account for 61 million tons, or about 73%.
The industry expects global LNG carrier orders this year to more than double from last year. Samsung Heavy Industries projected that global LNG carrier orders this year will reach 80 to 100 ships, and Hanwha Ocean also expected a similar level.
HD Korea Shipbuilding & Offshore Engineering said, "Projects currently under discussion are proceeding quite a bit on a base of higher prices," adding, "Prices will steadily rise this year." As Korean shipbuilders have already secured more than three years of backlog, they plan to stick to a selective order-taking strategy, choosing only shipowners who will pay full price rather than competing excessively.