Home / Shipping News / Shipbuilding News / Shipbuilding/shipping: Recovery in LNG Carrier Orders, Wait for Tankers

Shipbuilding/shipping: Recovery in LNG Carrier Orders, Wait for Tankers

Containerships have led growth in freight rates and order placements in 2021. For containerships, the average freight rate and order placements in 1Q-3Q21 surged 240.7% and 1,379.0%, respectively, vs. 2020 levels. Freight rate hikes were mostly attributable to congestion at US ports. Containerships currently have to wait ten days or more for loading and unloading, compared with a pre-pandemic average of two to three days, due to labor shortage. This has caused a drop in the number of sailings and vessel tonnage. HMM saw the quarterly average number of containership sailings fall to 1.3 in 2Q21 vs. the pre-pandemic average of 3.1.

Weaker orders for containerships have been confirmed in 2H21 vs. 1H21 levels with the end to planned order placements. Meanwhile, order placements for LNG carriers resumed at end-3Q21 to be used for LNG liquefaction plants that started construction in 2019.

Shipbuilders to see valuation turnaround in 2Q22 on resumption of tanker orders

Shipbuilders tend to see a valuation turnaround driven first by order intake and then by newbuilding prices. We expect tankers and LNG carriers to lead growth in newbuilding prices in 2022. The LNG carrier market is clearly on a recovery path. Supply of LNG liquefaction plants is projected to grow at a CAGR of just 3.6% in 2021-2024, whereas LNG demand has increased 6.1% over the past five years. With LNG prices kept high, order placements for LNG carriers should rise going forward. Qatar plans to order 20 LNG carriers for the North Field project at end-November. Orders expected in 2022 include 17 carriers for the Mozambique LNG project (March) and 14 carriers for Russia’s Baltic LNG project (1H22). LNG carrier orders could be further boosted by speculative demand.

Tankers’ cargo volume is increasing on crude output growth at OPEC and recovery in oil demand with global economic recovery/reopening. However, it should take time before order placements resume growth due to high newbuilding prices and slow recovery in freight rates. We expect to see a rebound in freight rates in 4Q21 and resumption of order placements from 2Q22.

NEUTRAL on shipping; OVERWEIGHT on shipbuilding with shares to rally from 2Q22 on newbuilding price hikes

We recommend NEUTRAL on the ocean shipping sector given concerns over a peak-out of containerized/bulk freight rates expected in the near future. We retain our OVERWEIGHT rating on the shipbuilding sector. Shipbuilding stocks should rise slightly in 4Q21-1Q22 backed by strong order intake for LNG carriers. A major rally is expected once newbuilding prices begin to climb on the resumption of tanker orders in 2Q22.

We recommend accumulating shares in Hyundai Mipo Dockyard in 4Q21, Samsung Heavy Industries after November 19, and Daewoo Shipbuilding & Marine Engineering from 2Q22. Hyundai Mipo Dockyard shares suffered the sharpest correction among shipbuilders in 3Q21 and are now trading at a PBR of 1.3x, which is lower than Hyundai Heavy Industries’ 1.6x and Samsung Heavy Industries’ 1.4x. The shares will likely recover from excessive corrections in the short term (valuation call).

Samsung Heavy Industries shares are moving sideways on overhang concerns from the recent rights issue, despite strong order intake (KRW5tr) for September-October and the highest order portion of LNG carriers among peers. The shares are forecast to increase sharply upon the listing of new shares on November 19. Daewoo Shipbuilding & Marine Engineering shares, which are most undervalued among peers at a PBR of 0.8x, should rise from 2Q22 when the resumption of tanker orders will bring the whole shipbuilding sector back to the spotlight.
Source: Business Korea

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping