Shipowners hoping for a cooling in newbuild prices should brace for disappointment. Key yards are still posting enormous losses, despite orders piling in and prices heading north. With orderbooks stretched far forward, shipbuilders will remain obstinate when it comes to pricing as they battle to try and get back into black ink.
Labour costs are increasing at yards in East Asia while steel plate prices, which typically make up around 20% of a ship’s costs, have soared this year, albeit they are finally showing some signs of easing this month.
South Korea’s top three shipbuilders – Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME) – suffered a massive combined KRW1.5trn ($1.1bn) loss in the first half of the year.
Despite most blue chip yards securing huge volumes of orders, there is little appetite for risk after an extended lean period for the sector.
“Having worked through a decade of heavy losses, and with 2022 also forecast to be a loss-making year for most yards, shipbuilders with a legacy have limited resources,” said Thomas Bracewell, a newbuild expert working for brokers Arrow.
Korean yards are also limited in their pricing by the stiff competition they face from their Chinese counterparts from across the Yellow Sea.
According to the German Shipbuilding and Ocean Industries Association (VSM), Chinese shipyards are offering shipbuilding prices today which are up to 30% lower than 15 years ago although average wages in China have risen by nearly 400% within the same period.
Korean shipyards which have kept up with this price competition recorded losses of $3.3bn in 2021, VSM pointed out in a release issued in May.
“Newbuilding prices remain at firm levels, owing to firm steel prices, wider inflationary pressures, and depleted slot availability at shipyards,” the latest weekly report from Clarksons Research stated on global newbuild prices as of August 19.
The Clarksons Newbuilding Price Index currently stands at 162 points, up 11% year-on-year, buoyed by record volumes of orders for containerships and LNG carriers. Other ship types have seen very sparse ordering in the 2020s to date.
Poten & Partner pointed out in its most recent weekly report that the last time a shipowner placed an order for a VLCC was in June 2021.
The last VLCC that was ordered 14 months ago cost $93m. Now, Poten is assessing the contract price for the same vessel at $119m, a 28% increase.