Ripple effects from the Middle East war sent new orders for very large crude carriers (VLCCs) worldwide in the first quarter surging to more than 21 times the level a year earlier. Early gains were concentrated at Chinese shipyards with price competitiveness, but as Chinese docks quickly filled up and prices rose, orders began flowing to Korean shipyards as well. Hanwha Ocean, riding this momentum, has won orders for 10 VLCCs so far this year. While Korea's shipbuilders are using the tanker boom as an opportunity to secure profitability, their long-term strategy remains focused on high value-added, eco-friendly ships such as liquefied natural gas (LNG) carriers.
◇ In Q1, VLCC orders rose from 3 last year to 64 this year
According to the Greek shipbroker Xclusiv on the 27th, global new orders for VLCCs in the first quarter totaled 64, a sharp jump from three in the same period last year. A VLCC is a ship type that can transport 2 million barrels of crude oil at once, roughly equal to Korea's daily consumption.
With transit through the Strait of Hormuz restricted, some tankers were immobilized and available tonnage fell. As route uncertainty grew, short-term tanker charter rates spiked. Shipowners, backed by improved operating profitability, moved to secure tonnage, and new orders quickly increased. Coupled with replacement demand for aging tankers, tankers accounted for about 45% of all new orders in the first quarter.
Initial orders concentrated at Chinese shipyards, where prices are relatively low. Compared with LNG carriers, VLCCs have lower technical barriers to build and are less profitable than high value-added ships, so Korean shipyards had not actively pursued orders in this segment. China's private shipbuilder Hengli Heavy Industries is said to have won orders for more than 38 VLCCs in the first quarter alone. Across Chinese shipyards, 399 ships totaling 12.39 million CGT were ordered in the first quarter, capturing a 70% share of global orders.
But as VLCC charter rates and newbuilding prices rose together after the war, the landscape shifted. The newbuilding price for large tankers climbed to $129.5 million in March this year, up 3.6% from a year earlier. As prices rose, Korean shipyards had more incentive to pursue orders. With construction slots at major Chinese yards largely filled through 2029 deliveries, shipowners had little choice but to look to Korean yards to meet schedules. With supply and demand aligning, orders started to flow to Korean shipyards.
◇ VLCCs bring timely relief, but Korean shipbuilders' center of gravity is LNG carriers
Hanwha Ocean has won orders for 10 VLCCs so far this year. That is 2.5 times more than the four ordered in the same period last year. Contract prices also rose from $129 million to $129.7 million per ship last year to $130 million to $130.5 million this year. Hanwha Ocean is securing profitability by boosting efficiency across design, procurement, and production through a repeat-ship approach that reuses proven designs. HD Korea Shipbuilding & Offshore Engineering and Samsung Heavy Industries have won orders for seven and four crude carriers, respectively, so far this year.
Hanwha Ocean and other Korean shipbuilders plan to selectively take orders for tankers such as VLCCs with improved short-term profitability while maintaining a focus on high value-added large vessels. A Hanwha Ocean official said, "We plan to continue our selective ordering strategy centered on high value-added large vessels while responding flexibly to market volatility." As of March this year, Hanwha Ocean's order backlog stood at 63 LNG carriers and 37 VLCCs, with LNG carriers nearly twice as many.
LNG carriers require advanced technologies such as cargo containment systems and cryogenic facilities, and their prices are roughly double those of VLCCs. As of last month, the newbuilding price for a 174K-class LNG carrier was $248.5 million, 92% higher than a large tanker ($129.5 million). In fact, LNG carrier orders for Korea's three major shipbuilders are rising sharply this year. Hanwha Ocean has secured orders for four LNG carriers this year, doubling from two in the same period last year. HD Korea Shipbuilding & Offshore Engineering grew from one to 12, and Samsung Heavy Industries from one to six. An industry official said, "While securing profitability amid the tanker boom, we are continuing a strategy to widen the technology gap in LNG carriers and eco-friendly ships that China finds hard to challenge."