South Korea’s biggest shipbuilder warns over US-China trade war

South Korea’s biggest shipbuilder warns over US-China trade war
24 July 2019 https://www.ft.com/content/f067ef5a-ada1-11e9-8030-530adfa879c2

Dearth of orders for new vessels damps expectations for industry turnround

One of the world’s top shipbuilders is bracing for flat new order growth in the industry in 2019, as rising uncertainty stemming from the US-China trade war has caused major customers to hold back orders.

The trade dispute, coupled with a new suite of environmental regulations facing shipping companies, had damped shipowners’ investment appetite in the first six months of the year and threatened to slow the recovery of an industry that has struggled for years with overcapacity, Ka Sam-hyun, chief executive of Hyundai Heavy Industries told the Financial Times in Seoul.

“The first half of this year was a really difficult period in terms of new order levels,” Mr Ka said. “Most shipowners are hesitating to make a decision.”

Mr Ka’s comments — which come just weeks after US president Donald Trump and Chinese president Xi Jinping agreed to resume trade talks following months of stalled progress — highlight the collateral damage to global investment sentiment already caused by the dispute between the world’s two biggest economies.

South Korean shipbuilders have about a quarter of the global market share. Their order books, which reflect future international shipping activities, are seen as a key bellwether for global trade, analysts said.

$15.9bn

Hyundai Heavy’s forecast for new orders in 2019 now looks optimistic

In January, Hyundai Heavy Industries forecast new orders of $15.9bn for 2019 — which have would have marked a significant improvement from $5.9bn in 2016 when the industry was at its lowest ebb in years.

But the weaker-than-expected environment so far this year appears to have cast doubt over those hopes.

“The total order book this year will not be more than the figure last year,” said Mr Ka. The company recorded $13.97bn in orders during 2018.

According to shipping-market tracker Clarksons Research, global investment in new vessels declined 24 per cent to $29.2bn in the first half of 2019. The result was hampered by sharp year-on-year falls of more than 30 per cent in Europe and Asia, more than offsetting an uptick in the US.

Hyundai Heavy reports second quarter financial results on Thursday and profits are expected to benefit from rising demand for higher-value liquefied natural gas carriers.

Mr Ka remained “optimistic” about an industry turnround longer term, particularly as owners transitioned to high-tech, cleaner-fuelled engines in response to regulations.

However, he said it was difficult to measure exactly how much of the worse than expected demand could be attributed to the trade war. “It is not easy to quantify. But it is a big part,” he said.

Trinh Nguyen, a senior economist at Natixis, said China’s economic slowdown — the country reported its slowest growth in almost 30 years in the second quarter — was dragging on deteriorating investment levels in industries across much of Asia.

“The trade war doesn’t help because it creates additional stress on China, a traditional growth driver for Asia,” she said.

Analysts are also wary that despite the latest de-escalation in tension between China and the US — face-to-face meetings are set to resume this month after a meeting between Mr Trump and Mr Xi on the sidelines of the G20 in Osaka in late June — the underlying concerns in Washington over Chinese policy have not been dealt with, further clouding the outlook for a lasting resolution.