Surge in Oil Prices Might Lead to New Orders for Shipbuilders

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While the global oil prices have rallied in the past weeks and may settle above the USD 60 level in the near future, there is good news for the Korean shipbuilders who are battling a drop in new orders.

Rising oil prices will accelerate orders for offshore facilities, and demand for other ships as well. Oil prices have surged around 20 per cent since August 2017, which may stoke demand for offshore facilities by oil developers, analysts said.

Oil prices rebounded Friday, on hopes for the extension of an Organisation of the Petroleum Exporting Countries (OPEC) output cut deal. Brent crude oil rose USD 1.36, or 2.2 per cent, to settle at USD 62.72 a barrel, while U.S. West Texas Intermediate crude (WTI) ended USD 1.41, or 2.6 percent, higher at USD 56.55 a barrel.

Rising oil prices may lead to more drilling activity, which means more new orders for local shipyards such as Samsung Heavy Industries and Hyundai Heavy Industries.

South Korea’s major shipyards, led by Hyundai Heavy Industries, delivered weak earnings for the third quarter of the year, having received fewer orders in recent years and built lower-priced vessels. South Korean shipbuilders witnessed severe financial crisis since the 2008 global economic slump, which sent new orders fall and tougher competition from Chinese rivals.

Two years back, the country’s top three shipyards suffered heavy operating losses in 2015. The loss was largely due to increased costs stemming from a delay in the construction of offshore facilities and an industry-wide slump.

Sea News, November 21

Baibhav Mishra
Author: Baibhav Mishra

Associate Editor, Sea News