Korean shipbuilders post record profits, but China threat sinks shares

Korean shipbuilders are posting record earnings thanks to high-value liquefied natural gas (LNG) carriers, while easing prolonged labor disputes has provided further relief. Yet their shares have plunged from this year's highs as intensifying competition from China fuels concerns that the industry's boom may be nearing its end.

HD Korea Shipbuilding & Offshore Engineering (HD KSOE) announced on Wednesday preliminary third quarter consolidated revenue of 8.29 trillion won ($6.1 billion) and operating profit of 1.45 trillion won, up 9.3 percent and 37.3 percent, respectively, from a year earlier. HD KSOE oversees subsidiaries including HD Hyundai Heavy Industries, HD Hyundai Samho and HD Hyundai Energy Solutions.

Its cumulative operating profit for the first nine months of the year reached 4.45 trillion won, already well above its record annual operating profit of 3.9 trillion won posted last year.

Hanwha Ocean also said Tuesday that its third quarter revenue rose 12.9 percent on year to 3.41 trillion won, while operating profit jumped 67.6 percent to 485.7 billion won.

Samsung Heavy Industries, which is scheduled to release its third quarter earnings Thursday, is expected to report operating profit of 349.8 billion won, up 46.9 percent on year, based on the average estimate of securities analysts.

The strong earnings are driven by ships secured at higher prices.

Shipbuilding typically takes two to three years from order placement to construction and delivery, with a substantial portion of payments received upon delivery. As a result, vessels ordered at higher prices during an industry boom often contribute to earnings several years later.

High-value vessels, including LNG carriers ordered since 2024, have begun contributing significantly to revenue this year, boosting profitability.

“Despite fewer working days and exchange rate challenges, we delivered strong results thanks to improved productivity and higher revenue driven by rising ship prices,” an HD KSOE official said.

Labor disputes that had weighed on the industry have also begun to ease.

Management and the union at HD Hyundai Heavy Industries, HD KSOE's flagship subsidiary, concluded 147 days of wage and collective bargaining negotiations on Tuesday after union members approved a tentative agreement.

The negotiations had been marked by prolonged tensions, including 11 rounds of partial strikes and a protest in which the union's branch leader occupied a crane.

The two sides estimated that the agreement would provide an average financial benefit of 41.36 million won per union member.

Hanwha Ocean has also reached a tentative agreement that includes a 140,000 won increase in base pay, with union members scheduled to vote on the deal Thursday.

Samsung Heavy Industries became the first of the three major shipbuilders to conclude wage negotiations last month.

The biggest challenge, however, comes from China.

Chinese shipbuilders accounted for 76 percent of global new ship orders from January through September, compared to Korea's 15 percent, according to British shipping and shipbuilding market research firm Clarksons Research.

While Chinese orders remain concentrated in relatively less profitable vessels, such as bulk carriers and small and midsize container ships, Chinese shipbuilders are rapidly narrowing the technological gap and increasingly targeting the LNG carrier market, a key stronghold of Korean shipbuilders.

These concerns have weighed heavily on share prices.

As of Wednesday's close, shares of HD KSOE, Samsung Heavy Industries and Hanwha Ocean were down 49.8 percent, 52.1 percent and 65 percent, respectively, from their highest levels this year.

“There are concerns that the commercial shipbuilding market may have passed its peak due to aggressive capacity expansion by Chinese shipbuilders,” Lee Han-gyeol, an analyst at Kiwoom Securities, said.

Korean shipbuilders are responding by diversifying their business portfolios.

HD Hyundai Heavy Industries has been expanding its environmentally friendly vessel business after recently completing construction of the world's largest ammonia-powered ship.

Hanwha Ocean and Samsung Heavy Industries are also focusing on developing new businesses, such as floating data centers.

Efforts to expand into the U.S. market are also gaining momentum.

Hanwha Ocean is seeking opportunities in the U.S. Navy market through its Philly Shipyard, while HD Hyundai is moving forward with plans to build a shipyard in partnership with U.S. construction company Kiewit, accelerating Korea-U.S. shipbuilding cooperation under the Make American Shipbuilding Great Again, or MASGA, initiative.

“China has only recently entered the LNG carrier market, so its ships have yet to reach a high level of sophistication in terms of quality and durability,” a source from the Korean shipbuilding industry said. “We need to remain vigilant, but the competitive landscape is unlikely to change overnight.”

“Of course, the LNG carrier boom will eventually come to an end, so we are focusing on finding new growth engines to prepare for the era of decarbonization.”

BY NA SANG-HYEON [[email protected]]