The Korean shipbuilding sector is experiencing a turbulent
start to 2021 similar to much of the shipbuilding industry. Despite a strong
finish to 2020 and optimistic statements from shipyard executives, the yards
are now facing a slowdown in near-term workflow and have been forced to cancel
contracts as the shipowners have not been able to fulfill the terms of the
agreements.
After saying that it had a good start to 2021, Hyundai Heavy
Industries is reporting a setback for its order book. In January, HHI received
orders for 14 ships valued at over $1.4 billion. They said that was about three
times the orders received in January 2020.
In a regulatory filing on February 4, the parent company
Hyundai Heavy Industries Holdings, however, announced that it had been forced to
cancel contracts for 10 VLCCs valued at nearly $900 million due to the failure
of the unnamed clients to meet deadlines for progress payments stipulated in
the contract. "The client did not pay the contractual shipbuilding fee
within the deadline so we notified the client of the termination of the
contracts,” Hyundai Heavy Industries Holdings wrote in the filing.
The order had been booked in November 2020 with seven of the
ships to be built at Hyundai Heavy Industries’ yard and the other three by
Hyundai Samho Heavy Industries. The company will remove the orders from its
2020 results.
Representing more than 10 percent of the total orders for
VLCCs worldwide, the loss of the contract comes as a significant blow to the
company and its short-term workflow. However, it is not the only order
cancelation the Korean shipyards have recently experienced. At the end of 2020,
Daewoo Shipbuilding & Marine Engineering also reported that it had canceled
a conditional order received in December 2019 for six containerships also due
to the shipowner’s failure to meet a deadline.
News of this latest order cancelation came as Korea
Shipbuilding & Offshore Engineering (KSOE), the parent company of the HHI
shipbuilders reported that profits had declined by nearly 75 percent in 2020 to
a net loss of nearly $750 million While sales for the year recovered to a total
decline of less than two percent versus 2019, the company reported an operating
loss of more than $16 million in the fourth quarter of 2020.
The three leading South Korean shipbuilding groups projected
that the recovery would continue in 2021 targeting a better than 40 percent
increase in orders. According to the Korean news agency Yonhap, KSOE would
represent half the order book with a target of nearly $15 billion. Both Samsung
Heavy Industries and Daewoo Shipbuilding & Marine Engineering were reported
to be each targeting just under $8 billion.
Even before the latest order cancelations, there was a
concern that the yards would face a slowdown in work in the second half of 2021
due to the decline in new orders earlier in 2020 Yonhap reports. The recovery
in orders late in 2020 came too late to fill the schedules for the yards
especially in the second half of 2021. Analysts, however, noted to Yonhap that
this was expected to be a short-term challenge for the yards as the scheduled
for construction from the orders received later in 2020 would increase the
workflow by the later part of 2021 and on into 2022.