Maersk contract benefits Korean yards

John Goss writes: As the news of the order, which if the options are exercised would be Daewoo’s largest ever single shipbuilding order, broke Daewoo’s shares surged by more than 7%. The news also sent the shares of other Korean shipbuilders higher as this considerable order volume and the amount involved – some $4 billion – provided the market with a sign of confidence in the future outlook for the shipbuilding industry by raising hopes that more orders would be following. An anonymous source said that the deal has been signed and the two companies were preparing detailed statements ahead of a public announcement expected soon, said the source, who declined to be identified because the full details of the deal had not yet been made public.

Daewoo has previously said that the company is aiming to secure $6 billion in shipbuilding orders this year. So, this contract worth $4 billion from Maersk is a positive indicator for the future. Under the first contract from Maersk, Daewoo Shipbuilding will build 10 container ships which will be able to carry 18,000 TEU, which are the largest vessels available in the sector. The additional 10 container ships would be similar vessels. Analysts say that container ships as large as these would most likely be used on trade between Europe and Asia as these regions have the deepwater ports that are able to accommodate such large vessels.

Analysts comment that this deal with Daewoo represents a big win for the Korean shipbuilder because ever since 1996, Maersk had built its largest ships in Denmark. Maersk decided some 15 years ago the company would maintain market position by operating the largest container ships in the world which would give Maersk an economy of scale over its competitors. The shares of Daewoo, which is currently the world’s second shipyard by number of deliveries, rose close to 6% on the news and were even higher earlier. South Korean shipbuilder’s shares jumped 5% on a positive order outlook.

The shares of Hyundai Heavy Industries, which is the world’s leading shipbuilder, rose 2.7% and the shares in Samsung Heavy Industries gained 6%. Generally, the positive news was taken in Korea’s stock market as a boost of market confidence for the nation’s shipping industry and the global trade outlook following the recent financial crisis. Recent reports show that Maersk’s container shipping business moved back into profit in 2010 as trade picked up. Market analysts estimate that the global demand for containers rose to 14% last year, but the market is forecast to slow down to something like 7.7% for 2011.