China's increase in imports of South Korean ship engines has led to favorable results for domestic ship engine manufacturers. Chinese shipbuilders accounted for 70% of the global new ship orders last year, significantly increasing orders for South Korean ship engines. Chinese engine manufacturers, lacking experience and technology in the rapidly growing dual fuel engine sector, which can use both heavy fuel oil and eco-friendly fuel, are turning to South Korea.
According to trade statistics from the Korea International Trade Association on the 30th, South Korea's export value of ship propulsion engines to China reached $900 million (about 1.3 trillion won) last year, marking a 32% increase from the 2023 export value of $681.22 million. This is interpreted as a consequence of China's aggressive approach to shipbuilding, leading to an increase in imports of South Korean ship engines.
According to Clarkson Research, a British shipbuilding and shipping market analysis firm, 2,412 new ships were ordered globally last year, totaling 65.81 million Compensated Gross Tonnage (CGT), making it the third highest since 2006-2007. Of these, China secured 46.45 million CGT (1,711 ships), increasing its new order market share to 70%. South Korea obtained 10.98 million CGT (250 ships), with its market share dropping to 17%, the lowest since 2016 (15.5%).
China relies on South Korea for eco-friendly dual fuel engines, which require higher technology than general engines. Dual fuel engines are complex to manufacture and require lengthy testing periods, preventing China from meeting its engine demand independently. A shipping industry insider noted, "While Chinese shipbuilders dominate the shipbuilding market share, the increase in orders for South Korean engines creates a favorable situation for domestic engine manufacturers."
Hanwha Engine is estimated to have surpassed 1.1 trillion won in annual revenue last year, bolstered by increased exports of ship engines to China. This marks the first time since 2012 that annual revenue has exceeded 1 trillion won. According to securities consensus, Hanwha Engine's annual operating profit last year is expected to be around 73.3 billion won, a 743% increase compared to 2023 (8.7 billion won). Hanwha Engine, which faced years of operating losses during the HSD Engine era, returned to profitability in 2023 after being acquired by Hanwha Group.
The shipbuilding industry anticipates that Hanwha Engine will secure the largest volume of new orders in its history this year, following last year's record. Hanwha Engine won new orders worth 1.65 trillion won last year, and it is estimated that its order backlog exceeded 3 trillion won by the end of last year.
Hanwha Engine announced on the 7th that it has signed a contract to supply ship engines worth 629.2 billion won to a company in the Asia region. This large contract accounts for 73.6% of its 2023 annual revenue (854.4 billion won). The contract period is approximately four years, until November 2028.
Hanwha Engine did not disclose the contract partner and only referred to the supply area as "the Asia region," but it is estimated by the shipbuilding and securities sectors to be for orders from Chinese shipyards. This is based on the fact that last year's order backlog included only domestic clients Hanwha Ocean and Samsung Heavy Industries, as well as clients from Chinese shipyards. Hanwha Engine entered a supply contract worth 233 billion won with China's New Era Shipbuilding last August, which resulted in a 34% share of its order backlog from China as of the end of September.
Engine affiliates under HD Hyundai are also benefiting from increased exports to China. HD Hyundai Heavy Industries, which holds the top market share in global ship engines, is expected to have annual operating profits last year increase fourfold to around 730 billion won. A significant factor is the improved sales and operating profit outlook for its engine machinery division in the last quarter. HD Hyundai Heavy Industries stated that it plans to export 80 large engines and approximately 250 independently developed medium engines (Himsen engines) to China this year.
HD Hyundai Marine Engine, which was incorporated into HD Hyundai in the third quarter of last year, is projected to derive about 30% of its revenue from exports to China's Xiamen Xiangyu. As the factory is not yet fully operational, it is believed there is a high possibility for additional orders.