Korean shipbuilding stocks slammed by recession fears, push up costs
South Korean shipbuilders underperformed the bearish stock market despite returning to No. 1 in the global order book in the first half on a flood of LNG carriers and value-added vessels as rising material costs threaten their near-term earnings outlook and longer-term global economic slump.
Shares of Korea’s and world’s largest shipyard Hyundai Heavy Industries (HHI) fell 19.58% through Thursday this month, wiping out the 20% gain it enjoyed in June despite the general market crash .
Its parent Korea Shipbuilding & Offshore Engineering fell 14.48%, Hyundai Mipo Dockyard 11.96% and Samsung Heavy Industries 13.01%. Daewoo Shipbuilding & Marine Engineering, on strike, lost 19.38%.
The average loss for the five shipbuilding stocks so far this month was 15.7% versus Kospi’s 0.44% drop over the same period.
The category suffered from growing fears of a global recession that could end its winning streak in orders.
For this year, earnings would support soaring steel plate and other raw material costs.
Prices for thick steel plate have increased since last year. According to the Korea Mineral Resources Information Service, the price of iron ore, a major material for thick steel plate, jumped to $112.48 a ton as of July 8 from $90 in November. last year. Thick steel plates account for almost 20% of the price of a ship.
Rising labor costs are another burden.
Seoul-based financial data tracker FnGuide this month downgraded its outlook for HHI’s operating profit this year to a loss of 264 billion won from a loss of 32.9 billion won. three months ago. DSME’s operating loss is expected to widen to 716 billion won this year from previous estimates of 110.8 billion won, and Samsung Heavy Industries also to 289.6 billion won loss of 214.5 billion of won.
The ongoing strike at DSME is also clouding its earnings outlook, analysts warned.
But the industry‘s biggest concern is a slowdown in demand for ships after this year, analysts said.