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Higher oil prices bode well for S. Korean shipbuilders

Higher oil prices bode well for S. Korean shipbuilders
Global oil prices have rallied in the past weeks and may settle above the US$60 level in the near future, a boon for Korean shipbuilders still struggling with falling new orders, industry sources said Monday.

Oil prices rebounded Friday on hopes for the extension of an OPEC output cut deal. Brent crude oil rose $1.36, or 2.2 percent, to settle at $62.72 a barrel, while U.S. West Texas Intermediate crude (WTI) ended $1.41, or 2.6 percent, higher at $56.55 a barrel.
Oil prices have risen roughly 20 percent since August this year, which may stoke demand for offshore facilities by oil developers, the sources said.
“Rising oil prices will accelerate orders for offshore facilities, and demand for other ships will remain strong,” said Eum Kyong-ah, an analyst at Shinyoung Securities.
Rising oil prices may lead to more drilling activity, which means more new orders for local shipyards such as Samsung Heavy Industries Co. and Hyundai Heavy Industries Co., according to the analysts.
“Shipyards can receive orders for offshore drilling and other facilities,” said Choe Jin-myong of Cape Investment & Securities.
South Korea’s major shipyards, led by Hyundai Heavy Industries Co., delivered weak earnings for the third quarter of the year, having received fewer orders in recent years and built lower-priced vessels.
South Korean shipbuilders have been under severe financial strain since the 2008 global economic crisis, which sent new orders tumbling amid a glut of vessels and tougher competition from Chinese rivals.
The country’s top three shipyards suffered a combined operating loss of 8.5 trillion won in 2015. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and an industrywide slump.
Last year, Hyundai Heavy managed to post profits, but the other two yards suffered losses.

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