New ship orders are flowing to China! Is the South Korean shipbuilding industry clinging to its last stand?

Although South Korea's shipbuilding industry has lagged behind China in terms of annual order volume for two consecutive years, it has still maintained a significant share of the market by focusing on high-end ship types such as environmentally friendly vessels. However, witnessing a large influx of new ship orders to China, the South Korean government will invest heavily to secure technological leadership in the future shipbuilding market to defend its remaining market share.

China's shipbuilders ranked first globally for three consecutive months, with their order share exceeding that of South Korea by more than 50% last month!

According to data released by Clarksons on January 10, global new ship orders in December totaled 47 vessels with 1.65 million CGT, a year-on-year decrease of 19% and a month-on-month decrease of 44%. China secured 35 vessels totaling 1.24 million CGT, achieving a market share of 75%, ranking first globally for three consecutive months following October and November last year; South Korea only secured 8 vessels with 340,000 CGT, achieving a market share of 21%, lagging behind China by a significant margin of over 50% and ranking second.

Data shows that the total global new ship orders in 2022 reached 1384 vessels with 42.78 million CGT, a decrease of 10.52 million CGT (20%) compared to 53.3 million CGT in 2021. Chinese shipbuilders secured 728 vessels with 20.82 million CGT, achieving a market share of 49%; South Korean shipbuilders secured 289 vessels with 16.27 million CGT, achieving a market share of 38%, a decrease from the previous year (414 vessels, 17.86 million CGT). The year-on-year share increased from 34% to 38%, but still lagged behind China by more than 10 percentage points, ranking second.

As of the end of December last year, the global backlog of new ship orders stood at 3742 vessels totaling 108.14 million CGT, a decrease of 480,000 CGT compared to the end of November. China held new ship orders of 47.88 million CGT, with a market share of 44%; South Korea held new ship orders of 37.5 million CGT, with a market share of 35%. Compared to the end of November, the market share of both South Korea and China increased by 0.2%. However, compared to the end of 2021, South Korea's backlog of new ship orders increased by 25%, higher than China's 15% growth rate.

Regarding new ship prices, at the end of December last year, the Clarksons Newbuilding Price Index stood at 161.81 points, a year-on-year increase of 7.63 points.

In terms of ship types, a 174,000 cubic meter LNG carrier reached US\$248 million, a VLCC reached US\$120 million, and an ultra-large container ship reached US\$200 million.

South Korean industry insiders stated that from 2018 to 2020, South Korea ranked first in global orders for three consecutive years, but since 2021, it has lagged behind China for two consecutive years, relying on its domestic order volume. However, there is a huge difference in the order structure between the two countries: South Korea mainly undertakes high-value-added vessels such as LNG carriers and large container ships, while China not only has a growing market share in the high-end ship segment but also dominates the low-value-added segments such as bulk carriers and small container ships, resulting in a polarized order structure. Throughout 2022, South Korea did not receive a single bulk carrier order.

This characteristic is clearly reflected in the order situation of the South Korean and Chinese shipbuilding industries in 2022. Last year, the number of new ship orders for the South Korean shipbuilding industry was 439 vessels less than China's, less than 40% of China's, but the market share was only 11 percentage points behind China. This shows that the value-added of the ship types undertaken by South Korean shipbuilding companies is far higher than that of China.

High value-added ship types have become the last bastion! South Korea is vying for technological leadership in the future shipbuilding market.

It is worth mentioning that, under the situation of a significant increase in global high value-added and environmentally friendly ship orders last year, South Korean shipbuilding companies leveraged their technological competitiveness in the high-end ship segment, ranking first in the world in alternative fuel vessel orders last year.

Citing Clarksons data, South Korea's Ministry of Trade, Industry and Energy pointed out that new ship orders for alternative fuel vessels surged last year, reaching 26.06 million CGT, accounting for 62% of the year's new ship orders. This proportion is almost double that of 2021, when alternative fuel vessels totaled 17.16 million CGT, accounting for only 32% of the total orders of 53.62 million CGT.

Alternative fuels include LNG, LPG, methanol, and electric propulsion. Among them, South Korea's three major shipbuilders received a total of 13.12 million CGT of alternative fuel vessel orders last year, accounting for about 50% of the total orders. The vast majority of these vessels will use LNG fuel (92%), 5% will use methanol, and 3% will use LPG. In the LNG-powered vessel segment alone, South Korean shipbuilders accounted for 54% of the market share.

In addition, in the high value-added vessel segment, including large LNG carriers, large container ships, and VLCCs, South Korean shipbuilders received orders totaling 11.98 million CGT, accounting for 58% of the total. Particularly in the large LNG carrier segment, which continues to set record-high prices, South Korea secured 10.12 million CGT, accounting for 70% of the global total of 14.52 million CGT, once again demonstrating its status as a leading technology power in LNG carriers.