The world's strongest shipyard is back! Will this traditional ship type reignite the market battle?

After a lapse of 3 years, Hanwha Ocean (formerly Daewoo Shipbuilding), once the world's strongest VLCC shipyard, resumed taking orders, with ship prices hitting a 16-year high. After two years of "order drought", VLCC orders have shown a significant recovery this year, and the return of the South Korean giant has reignited "war" in this traditional field.

Ship prices hit a 16-year high! Hanwha Ocean secures first VLCC order in three years

On February 23, Hanwha Ocean announced that it had signed an order with an Oceania-based shipowner for two Very Large Crude Carriers (VLCCs), with a total contract value of 342 billion Korean Won (approximately 257 million US dollars). The transaction price set a new record high since the outbreak of the international financial crisis in 2008. These two VLCCs will be built at Hanwha Ocean's Okpo shipyard in Geoje City, with one expected to be delivered to the shipowner in the first half and the other in the second half of 2026.

In addition, this contract also includes optional orders that can be added, so it is expected that additional orders will be secured in the future.

Hanwha Ocean has adopted an optimized design for this type of VLCC and will be equipped with various energy-saving devices developed by Hanwha Ocean, minimizing carbon emissions and classifying it as an environmentally friendly crude oil carrier.

A Hanwha Ocean official stated: "Based on our long-accumulated differentiated VLCC technical expertise, construction experience, and leading eco-friendly technology applications, the company is pursuing a selective order-taking strategy focused on sustainable profits, and will do its utmost to normalize the company's operations."

Including the two new vessel orders signed this time, Hanwha Ocean has secured a total of 4 new vessel orders this year, with a total contract value of 510 million US dollars (approximately 3.67 billion RMB). On January 22, the company announced that it had secured an order for two 93,000 cubic meter VLACs from an Oceania-based shipowner, with a total contract value of 249 million US dollars (approximately 1.792 billion RMB).

This is Hanwha Ocean's first VLCC order since 2021. Clarkson's data shows that Hanwha Ocean's last VLCC order dates back to April 2021, when ADNOC Logistics & Services (ADNOC L&S), a subsidiary of Abu Dhabi National Oil Company (ADNOC), ordered one LNG dual-fuel VLCC, which was delivered and commenced operations in November 2023.

Since 2022, not only Hanwha Ocean, but South Korean shipyards as a collective have "disappeared" from the new VLCC shipbuilding market, focusing instead on securing orders for higher-value, higher-demand large LNG carriers and container ships.

According to International Shipping Network, Hanwha Ocean's predecessor, Daewoo Shipbuilding, possessed overwhelming competitiveness and construction performance in the VLCC building sector. Statistics show that out of a total of 925 VLCCs currently in operation worldwide, 185 were built by Hanwha Ocean, accounting for the largest share globally.

Korean industry insiders stated that Hanwha Ocean's first VLCC order in three years since 2021, and the deal being closed at the highest price in 16 years, thus marking its return to the VLCC construction market, is a victory for the company's continued selective order-taking strategy focused on high-profit products.

Orders to double this year! Can Chinese shipbuilders maintain their lead with the return of Korean giants?

It is understood that the price for a single VLCC in Hanwha Ocean's order reached 128.5 million US dollars (approximately 925 million RMB). For reference, Clarkson's current data shows that the price of a new 315,000-320,000 DWT VLCC is approximately 128 million US dollars, an increase of 7% compared to 120 million US dollars in the same period last year.

According to Clarkson's data, the cost of a new VLCC set an all-time high of 162 million US dollars in September 2008, then steadily declined, falling to just 80 million US dollars in 2017. Since 2021, with the general rise in global ship prices, VLCC construction costs have also climbed, returning to the 100 million US dollar level in July of the same year, and breaking the 120 million US dollar mark in August 2022. In the three years since 2021, VLCC construction costs have increased by more than 40%.

However, the contrast between high newbuild prices and weak VLCC freight rates during the same period has deterred most shipowners from ordering VLCCs. In recent years, the global VLCC shipbuilding market has experienced an "order drought," with new VLCC orders dropping to 31 in 2021 and further to just 3 in 2022, the lowest level on record. Although it rebounded to 18 last year, it remains at a historical low. As of now, the VLCC orderbook stands at only 23 vessels, accounting for merely 2.56% of the existing fleet.

Industry analysts state that the global VLCC fleet has entered a state of deep aging, with vessels over 20 years old accounting for 14.1% of the total capacity. Simultaneously, as new international maritime regulations are continuously strengthened, the dismantling of older VLCCs will increase, thus potentially ushering in a new wave of VLCC orders.

Last month, ship brokerage firm Poten & Partners predicted that new VLCC orders would more than double this year, and once a representative giant takes action, more orders will follow in the market. According to the company's estimates, newbuild orders will reach nearly 40 vessels this year.

The company believes that VLCCs remain the most economical tankers for long-distance crude oil transportation, with freight rates experiencing a strong recovery in 2023. Reduced orders for container ships and LNG carriers have opened up berths for other vessel types, although most berth vacancies appear in 2027 and beyond. More importantly, major VLCC owners are closely monitoring the extremely low order volume, as they believe that the overall oil market requires more than just a small number of VLCCs for crude oil.

Judging from the first two months of this year, the growth momentum of new VLCC orders has indeed recovered. As of now, there have been 7 new VLCC orders this year, whereas in the first two months of last year, only Mitsui O.S.K. Lines ordered 2 VLCCs from Dalian COSCO KHI Ship Engineering, and this order was also the only global VLCC order in the first half of last year.

It is worth noting that Chinese shipbuilders have dominated the VLCC construction sector in the past two years, with new VLCC orders since 2022 primarily secured by Chinese shipyards. During this period, only Japan Marine United (JMU) secured 3 VLCC orders. This year's 7 new VLCC orders have been entirely "monopolized" by China.

Clarkson's data shows that the top four individual shipyards globally in terms of VLCC orderbook are all from China: New Times Shipbuilding (8 vessels), Dalian Shipbuilding Industry Offshore (Tianjin) (6 vessels), Qingdao Beihai Shipbuilding (4 vessels), and Dalian COSCO KHI Ship Engineering (4 vessels).

Industry insiders point out that with the recovery of the VLCC market and confidence, subsequent order situations are improving. Shipyards in both China and South Korea have also re-entered the VLCC construction sector, and intense competition will once again unfold in this traditional field.