Japanese Shipbuilders face capacity limitations amid rising demand for Large Gas Carriers

The U.S. Trade Representative is poised to announce final sanctions against China’s shipbuilding industry by April 17, a move that could significantly reshape the global markets for liquefied petroleum gas (LPG) carriers and very large ethane carriers (VLECs). The sanctions are expected to include fees on ships affiliated with or constructed in China, potentially redirecting orders to other major shipbuilding nations like South Korea and Japan.

The impending sanctions come amid ongoing tensions in U.S.-China trade relations, which have seen various industries impacted by tariffs and other restrictive measures. The shipbuilding sector, where China has historically been a dominant force, is now facing a potential shift in market dynamics. South Korean shipbuilders, known for their technological advancements and quality, are being highlighted as likely beneficiaries of this shift, raising expectations for increased orders and economic opportunities.

Currently, LPG carriers account for about 47% of the U.S. share in global cargo volume, with VLECs holding a staggering 99.9%. Industry predictions suggest that the U.S. share in global cargo volume for LPG carriers could rise to 60% by 2028, driven by increased production and new export terminal projects. The U.S. is operating LPG export terminals with a capacity of 60 million tons per year (MTPA) and plans to expand this capacity by an additional 40 MTPA by the first half of 2028.

The construction of the “ONEOK-MPLX Terminal” in Texas is expected to lead to orders for approximately 29 new large gas carriers (VLGCs). Industry insiders believe South Korea is likely to secure orders for 25 of these ships, while Japan, with its limited annual delivery capacity, may secure up to four. An industry source noted, “Japan can also secure orders, but considering its annual delivery capacity, four ships are the maximum.”

In the VLEC sector, South Korea is anticipated to overtake China as a leading supplier. According to Clarkson Research, South Korea is expected to deliver 11 VLECs by 2027, compared to China’s 23. HD Hyundai Heavy Industries, a key player in South Korea’s shipbuilding industry, plans to deliver 43 gas carriers out of 52 ships by 2027, further solidifying its position in the market. The company has also secured orders for two VLECs worth 458.8 billion won from an Asian shipping company last month.

Sejin Heavy Industries, a partner of HD Hyundai Heavy Industries, is set to increase its LPG tank production capacity from 20 ships this year to 30 by 2027, outpacing competitors with an annual capacity of about six ships. This expansion underscores South Korea’s readiness to capitalize on the shifting market dynamics.

Oh Ji-hoon, a researcher at IBK Investment & Securities, commented on the evolving landscape: “The newbuilding order market is being divided into ‘South Korea and Japan’ and ‘China’ due to U.S. shipbuilding sanctions. South Korea, with its high competitiveness, will enjoy greater growth opportunities than Japan.” He further added, “VLECs will see profitability rise to margins comparable to LNG carriers, the most profitable vessel type, as a ‘monopoly premium’ of the South Korean shipbuilding industry.”

As the U.S. finalizes its sanctions, the global shipbuilding industry is bracing for changes that could redefine competitive advantages and market shares. South Korea’s shipbuilders, with their advanced technology and production capabilities, are well-positioned to benefit from these developments.

Source: Businesskorea