S.Korea: Shipbuilders to See Turnaround in 3rd Quarter

South Korean shipyards will see a turnaround in their profits during the third quarter, helped by stabilizing steel prices, inventory clearance of other key materials and a steady growth in offshore-related projects. Although it seems too early to say whether Korean shipbuilders will gain more orders from big ship owners amid the uncertain outlook for the global economy, analysts in Seoul said that leading local shipyards' profits will bottom out in the second quarter.
"Stock prices of the nation's leading shipbuilders have fallen steeply so far this year. On the back of impressive earnings performances, shipbuilding stocks will show a recovery," Sung Ki-jong, an analyst at Daewoo Securities, said Friday.
"As steel prices have been steadily falling, shipbuilders can save costs in producing ships, which is also another positive sign," according to Sung.
The price for steel plate per ton has decreased to 820,000 won from 1.2 million won in the first quarter, according to data from research firms.
"South Korean shipyards could get new offshore-related plant orders possibly from September as deep sea oil exploration technologies have recently been highlighted, helping shipbuilders boost their operating profits," Kim Yong-soo, an analyst at SK Securities, said.
South Korea is home to the world's three biggest shipyards ― Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding & Marine Engineering. The trio will release their second-quarter earnings reports during the last week of the month.
Sung expects the shipbuilders to see improvements in sales and operating profits thanks to enhanced production efficiency and a clearance of key materials for ships.
But pessimists say it is too early to project a turnaround as there are no clear signs of new orders. They say buying shipbuilding stocks seems risky for the time being.
"Some European owners have said that they will expand their fleets. But the outlook is less than optimistic about whether this is a turning point," said an analyst at Woori Investment.
"Stock moves of shipbuilders are mainly dependent on order books, not quarterly sales. It will be uncertain whether Korean shipbuilders will get massive orders until the first half of next year," the local brokerage said.
The economic downturn has hit shipbuilding hard, with new orders having contracted by up to 90 percent amid increasing cancellations, which is likely to result in a significant excess in shipbuilding capacity, said the Organization for Economic Cooperation and Development (OECD) in a recent statement issued from Paris.
The OECD said the outlook was unlikely to improve for some time.
"Shipbuilding has experienced a boom over the past decade, and most yards have strong order books. Although shipbuilders are now under pressure from ship buyers to cancel or defer contracts, the order books have to some extent cushioned the immediate impact of the crisis," it said.