Subscribe or upgrade your account to read:

South Korean shipbuilder shares jump on $20bn Qatar deal

Asia-Pacific companies

South Korean shipbuilder shares jump on $20bn Qatar deal

Order for carriers marks rare bright spot for industry pummelled by coronavirus outbreak

A worker carries construction materials as he walks past a ship which is currently under construction at Hyundai Heavy Industries’ Shipyard in Ulsan, South Korea © Reuters

Shares in South Korean shipbuilders rallied after Qatar’s state-owned oil producer signalled that it would order $20bn of new LNG carriers, marking a rare bright spot for an industry that has been hard hit by the coronavirus pandemic.

The country’s so-called “Big Three” shipyards — Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering — closed between 6 and 18 per cent higher in Seoul trading on Tuesday. Those gains came after Qatar Petroleum said it had reserved production capacity with the companies through to 2027 as part of its plans to build more than 100 new carriers.

“With the conclusion of these milestone agreements, we have everything in place to commence the largest LNG shipbuilding programme in history,” Saad Al-Kaabi, the Gulf state’s energy minister and chief executive of Qatar Petroleum said in a statement.

As part of the expansion of the North Field, the world’s largest liquefied natural gas project, Doha has struck a similar arrangement with Chinese shipbuilders.

Neither the number of ships to be built by each South Korean company, nor their pricing, has yet been finalised. “It is the first step,” a spokesperson for Hyundai Heavy said of the deal.

South Korean shipbuilders are the dominant force in the LNG carrier market but they have increasingly been threatened by Chinese competitors.

The sector has also suffered from the impact of Covid-19 on the global economy. Global shipyard output is expected to drop by a quarter this year as equipment shortages, site closures and financial stress rattle the industry, according to industry tracker Clarksons Research.

Investment in new vessels has fallen 60 per cent year-on-year to $10bn so far in 2020, prompting shipbuilders to lower prices in a bid to attract customers.

“The Covid-19 outbreak has severely impacted investor sentiment so far this year, amplifying existing concerns over new-build fuelling and technology choices,” Clarksons’ analysts wrote in a recent report. “Global travel restrictions related to the virus have also limited shipyards’ ability to conclude contracts.”

The global LNG industry is also under pressure. Seasonal demand is expected to contract for the first time in eight years this summer, according to energy consultant Wood Mackenzie, with growth not expected to return until mid-2021.

Qatar’s announcement was “significant” and would likely pave the way for large-scale vessel orders, said Jeong Dong-ik, an analyst at KB Securities in Seoul.

Orders could begin flowing through to South Korea’s shipbuilders in the second half of this year, said Kim Hong-kyun, a Dongbu Securities analyst.

News of the deal helped the South Korean companies’ stock prices on Tuesday to recover most of the losses they have suffered since the start of the year. The country’s broader Kospi stock index is down 5 per cent in 2020.

Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.

Content not loading? Subscribers can also read South Korean shipbuilder shares jump on $20bn Qatar deal on ft.com