Rising ship prices mean record profits at Hyundai

Hyundai Heavy Industries Co., the world’s largest shipbuilder, said first-quarter profit surged to a record as expanding trade with China and the U.S. drove orders for higher-priced container vessels and fuel tankers.
Net income rose to 371 billion won ($402 million) from 22.9 billion won a year earlier, the company said yesterday in a statement. Hyundai Heavy delivered ships contracted in 2004 and 2005, when prices rose by as much as 56 percent from a decade earlier as shipping lines bought vessels to bring raw materials to China and take away finished goods. Korean yards won almost half the world’s shipbuilding business last year, and profit may rise further as prices hold at all-time highs.
“Earnings will get better, as Korean shipyards have enough work to last about three years,” said Kim Jun-nyun at Korea Investment Trust Management Co. in Seoul. “Ship prices are expected to remain at record levels for the time being as shipyards focus more on higher-end vessels.”
Shares of Hyundai Heavy have more than doubled this year, the biggest gain among the 50 largest companies in Korea’s Kospi index.
Vessel prices have risen since late 2003 as Wal-Mart Stores Inc. and other retailers bought products made in China and other Asian countries, prompting those countries to purchase more oil and other raw materials. Stricter safety regulations and higher steel costs also led shipyards to increase prices.
First-quarter sales at Hyundai Heavy gained 29 percent to 3.68 trillion won and net income rose faster on increased contributions from subsidiaries including Hyundai Samho Heavy Industries Co. Operating profit, a measure of underlying business, more than doubled to 402.4 billion won, widening the margin to 11 percent of sales.
“The margins are only going to get better in each quarter because of the high-priced orders the shipyards received since 2003,” said Cho In-karp at Seoul Securities Co.