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An LNG carrier built by Hyundai Mipo Dockyard South Korean shipbuilders’ shares stood high in weak the local stock market as strong order books stoked predictions of earnings improvement with hopes emerging for a supercycle given the expected replacement of aging vessels.Hyundai Heavy Industries Co. soared 23.85% in the first 15 days of the month, touching a 52-week high of 149,500 won on April 15 and far outperforming a 2.3% decline in the wider Kospi. Daewoo Shipbuilding & Marine Engineering Co. jumped 13.51% during the period, while Korea Shipbuilding & Offshore Engineering Co. and Hyundai Mipo Dockyard Co. rose 9.9% and 12.8%, respectively.Such strength came as local shipbuilders secured more deals than expected in the first quarter. Five of them - Hyundai Heavy, Samsung Heavy Industries Co., Daewoo, Hyundai Samho Industries Co. and Hyundai Mipo – won contracts worth $15.2 billion in total, 40.9% of their targets for this year.“Orders for ships, especially LNG carriers and container ships, significantly increased,” said Kim Yong-min, an analyst at Cape Investment & Securities Co, referring to liquefied natural gas. “Local shipbuilders’ dock schedules are packed until 2024 due to the surging orders, while shipowners are scrambling to place new orders.”Kim played down some concerns over a potential slowdown in orders amid surging steel prices that pushed up production costs. “New ship prices jumped more than 20% in the first quarter from a year earlier. Shipowners would have not rushed to order vessels if they expected such a slowdown in the second quarter.”SUPERCYCLEThe global shipbuilding sector is expected to enter a supercycle thanks to the demand for the replacement of aging vessels in a few years, analysts said. The industry last enjoyed such a boom in the early 2000s when they reported better-than-expected profits for years and enjoyed surges in stock prices.A replacement cycle is predicted to gather momentum from 2025-2026 as the average age of ships such as very large crude carriers (VLCCs), handysize tankers and feeder container vessels sold at that time was 25 years, analysts said. Demand for LNG carriers is also growing as Europe is diversifying natural gas suppliers to cut reliance on Russia, the world’s second-largest producer, after its invasion of Ukraine. Germany halted the Nord Stream 2 Baltic Sea gas pipeline project, designed to double the flow of Russian gas direct to Germany, as part of international sanctions against Moscow, according to media reports.“Europe’s diversification of import sources is likely to boost demand for Korean LNG carriers,” said Kim Hong-gyun, an analyst at DB Financial Investment.Analysts chose Hyundai Mipo as their top pick among local shipbuilders on expectations that it is likely to turn to the black this year, faster than competitors.Other shipyards are predicted to turn profit from next year at the earliest as it usually takes more than two years for their earnings to reflect orders.By Sung-Mi Shimsmshim@hankyung.comJongwoo Cheon edited this article.
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