LNG boom puts Korean shipyards on investor radar
Date: 07-Jul-04
Country: SOUTH KOREA
Author: Kim Kyoung-wha and Park Sung-woo
Soaring demand for LNG, driven by energy-guzzling China and India, and falling gas output in the United States and Europe, has come as a boon to the shipbuilding sector in South Korea, which has 72 percent of the world's LNG tanker market.
Expectations that local shipbuilders would win multi-billion dollar deals from ExxonMobil Corp. (XOM.N: Quote, Profile, Research) have also given rise to a flood of foreign buying in the sector, analysts said.
Shares in Daewoo Shipbuilding and Marine Engineering Co. (042660.KS: Quote, Profile, Research) , the world's largest LNG shipmaker that has won $2.2 billion worth of LNG contracts this year, have jumped 30 percent since early May. Daewoo is also the world's second-largest shipbuilder.
Shares in the world's third-ranked shipbuilder, Samsung Heavy Industries Co. (010140.KS: Quote, Profile, Research) , have risen 18 percent, while Hyundai Heavy Industry Co. (009540.KS: Quote, Profile, Research) , the world's top shipbuilder, has seen its shares rise just 1 percent amid mounting losses at its plant division, but, over the same period, Seoul's main stock index fell 3.6 percent.
"The LNG boom will drive an across-the-board profit recovery for the shipbuilding sector, which has already enticed foreign investors in droves," said Joe Lee, a Daiwa Securities analyst.
Chun Yong-bum, an analyst with Daishin Securities, agreed.
"LNG ship orders are likely to rise steadily because oil majors are issuing more and more tenders to meet rising LNG demand in the United States and Europe," he said.
"Moreover, the price of an LNG tanker is going up and up as buyers want larger ships. The value of one LNG ship is equivalent to about three oil tankers."
An LNG tanker was likely to cost $200 million from the second half of this year, compared with the current $170 million and $90 million last year, he said.
BOOMING LNG DEMAND
Behind the LNG tanker market boom is rapidly growing global demand for cleaner fuel.
LNG demand should rise to some 200 million tonnes by 2010, and to 315 million tonnes by 2020, from 120 million tonnes in 2003, encouraged by a growing thirst in the United States, China and India, according to International Energy Agency data.
"In traditional markets like Japan and Korea, you've got increasing demand associated with increasing economic growth," said Gavin Law, head of global LNG at WoodMackenzie in London, explaining the mushrooming LNG demand.
The emergence of new LNG buying powers such as China and India, again driven by economic growth, was also a factor.
"Perhaps more importantly, (it has been) the demise of gas production in the U.S., UK and Europe," he said.
The United States and Europe, major markets for piped natural gas, are looking to import more LNG to meet soaring local gas demand to compensate for their own slowing production.
ExxonMobil currently has a tender out for 16 LNG carriers to ship gas from Qatar with an option for a further dozen 200,000 cubic metre ships. The U.S. oil giant is a partner in all of Qatar's existing LNG developments.
Korean shipbuilders look set to win most of the tenders, which are expected to close later this year, analysts said.
"BUY NOW"
Despite booming orders, Korean shipbuilders suffered a setback in first-quarter operating profits due to robust steel prices and a stronger won, and as lower-priced orders from 2002 were reflected in the books.
Analysts say the shipbuilding sector will see a turnaround in earnings next year when more lucrative LNG ship orders start to be priced in.
"History has shown that the best time to buy this sector is when operating conditions are still difficult - thus share prices are low - but a cyclical bottom is being reached," said Nam Kwon-oh, an analyst at Goodmorning Shinhan Securities.
Despite recent price upticks, shares in the sector had yet to stage a full comeback, analysts said.
Shares in Daewoo Shipbuilding are still 27
