Korean Shipbuilding Industries
Bull Driver No. 1: VLCC Order Spike
15 May 2008 - 13 pages
? Remember, 2007 rally came from huge VLCC orders in 2006 — In the
shipbuilding industry, the leading signal starts from VLCC orders, as the vessel
occupies huge dry dock space. 2007's rally started from 108 VLCC contracts
during 2006, followed by increases in new building prices in 2007. Average
VLCC contracts in 2000~2005 were only at 35, and 2007 orders were at 34.
? Now, massive VLCC orders return — The tanker spill accident in Korea restored
the appetite for double-hull tankers, as exhibited by the 25% rally in
secondhand vessel prices and massive VLCC orders. YTD contracts amount to
49 vessels, and we are likely to see 90~100 VLCC contracts again in 2008.
New building prices for VLCCs went up by only 5.5% YTD on USD basis, but
rose 19% in KRW.
? Historical high rates for tankers in off-peak season — Tanker rates used to
show seasonal strength toward year-end with heating oil demand, but current
freight rates are higher than the seasonal peaks in '05 and '06. This comes
from a shortage of double-hull tankers and developing countries' oil demand.
? 84% of VLCC orders go to Korea, at historical high prices — KRW-denominated
VLCC prices soared to W162bn, up from W136bn at end-2007 and W126bn a
year ago. Out of 49 VLCC contracts YTD, 41 went to Korean yards.
? No need to argue over shipbuilding prices — Once massive VLCC contracted,
strength of shipbuilding prices usually continue for the next 1~2 years with
tighter capacity constraints. The story of 2006~07 is now repeated again. |
