Japan's LNG shipbuilding comeback unlikely to rattle Korean yards

South Korea's three major shipbuilders — HD Korea Shipbuilding & Offshore Engineering, Hanwha Ocean and Samsung Heavy Industries — are riding a prolonged boom, with combined operating profit for the first half of this year approaching 5 trillion won ($3.62 billion), driven by strong orders for high-value LNG carriers. Against that backdrop, Japan's shipbuilding industry has announced a large-scale push to re-enter the LNG vessel market, but analysts widely expect the impact on Korean yards to be minimal.

Namura Shipbuilding, Japan's third-largest shipbuilder, plans to invest up to 100 billion yen ($629 million) by 2035 to build a new large dry dock for LNG carrier construction, foreign media reported Tuesday. The move comes as the global shipbuilding boom shows signs of lasting well into the future, prompting Japan — which has had no LNG vessel construction since 2019 — to re-enter the segment. The new dock would be the first large facility of its kind built in Japan since Imabari Shipbuilding completed its Marugame yard in 2017.

The Japanese government's public-private investment roadmap, announced in June, already included securing LNG shipbuilding technology as a goal. Japan aims to procure three to five LNG vessels domestically per year from 2035 onward, and Namura's investment is tied directly to that policy. Imabari Shipbuilding and Kawasaki Heavy Industries are also expected to join Japan's LNG re-entry project.

Most analysts, however, do not see Japan's return as a real threat to Korean shipbuilders. Samsung Securities said in a recent report that "the impact of Japan's attempt to re-enter shipbuilding on the Korean industry is limited." The primary obstacles are labor shortages and high labor costs — challenges Japan shares with Korea — and the difficulty of competing on price against Korean yards that have spent years optimizing design and operational efficiency.

Technical limitations compound the problem. Japan has focused mainly on bulk carriers rather than high-value vessels, and Namura's current order backlog is heavily skewed toward bulk carriers (91%) and LPG vessels (9%). As of late July, Japan held only a 5 percent share of global shipbuilding orders by value, with 65 percent of that concentrated in oil tankers and bulk carriers. Japan has had no LNG vessel orders since 2016 and no LNG construction experience since 2019, meaning it faces a lengthy road to acquiring the relevant technology, training skilled workers and building the operational track record needed to verify performance.

Some analysts read Japan's market entry attempt as a positive signal that the shipbuilding boom has further to run. Samsung Securities noted that "it is also encouraging that the countries now trying to enter shipbuilding are advanced economies — such as the United States and Japan — that are burdened by labor problems," adding that "this suggests the current shipbuilding structure led by Korea can persist for a long time."

Underlying demand in the LNG and tanker markets remains solid. ExxonMobil recently placed equipment orders worth $1.1 billion for its Mozambique Rovuma LNG project. Secondhand Suezmax vessel prices have reached around $130 million — on par with newbuild prices for very large crude carriers.

China's aggressive volume push remains a wildcard, however. Greek shipping company Evalend recently ordered 14 LR1 tankers from China's Yangzijiang Shipbuilding, and Ray Car Carriers, a regular HD Hyundai client, has been in talks with Chinese yard GSI over a newbuild contract.

Daol Investment & Securities said Korean shipyards are operating with full docks and continuing to be selective about orders, adding that "new markets in offshore plants and special vessels — including MASGA, the Korea-US shipbuilding cooperation project, data centers and floating data centers — are opening up, making the outlook bright."

South Korea's three major shipbuilders posted combined operating profit of 4.78 trillion won in the first half of this year — HD Korea Shipbuilding & Offshore Engineering at 3 trillion won, Hanwha Ocean at 1.18 trillion won and Samsung Heavy Industries at 598.1 billion won. All three achieved double-digit operating profit margins: 18 percent for HD Korea Shipbuilding & Offshore Engineering, 14 percent for Hanwha Ocean and 10 percent for Samsung Heavy Industries. Some analysts say the three companies could together surpass 10 trillion won in combined annual operating profit for the full year if the trend holds.

The strong results reflect a selective ordering strategy focused on high-priced vessels such as LNG carriers. Korean shipbuilders secured a combined 38 LNG carrier orders in the first half alone, and further orders are expected in the second half, centered on US LNG projects scheduled to begin operation in 2029.

The Korean yards already hold roughly three years' worth of work in their backlogs and are continuing to be selective while also accelerating capacity expansion. According to each company's semiannual report, HD Korea Shipbuilding & Offshore Engineering plans to invest 346 billion won in its shipbuilding division alone going forward, while Hanwha Ocean will commit 689.6 billion won in the second half of this year. Samsung Heavy Industries currently has 330.8 billion won in capital investment underway.