Since mid-March, Korea's leading shipbuilders have seen a significant uptick in their stock prices. Despite a sluggish start to the year due to a saturated order book and limited production capacity, renewed optimism has emerged among investors, possibly due to the anticipated benefits from escalating trade tensions between the US and China, along with the depreciation of the Korean won.

Whether the trade war is the exact cause is unclear, particularly due to limited American purchasing power within the maritime sector. However, analysts now see an increasing shift from the previous skepticism surrounding the trade war's implications to robust, sustained growth.

Rallying stocks

Market dynamics shifted notably on April 18, when Samsung Heavy Industries' stock spiked by 12 percent, reaching a yearly high of 9,710 won with a closing market cap of 95.4 billion won ($69.3 million). It also had a record-breaking foreign investment of 184 billion won, marking the highest level since the company’s 1994 IPO.

Similarly, HD Hyundai Heavy Industries and HD Korea Shipbuilding & Marine Engineering saw big gains, with stocks rising 8 percent and 6.3 percent respectively. Hanwha Ocean's stock also jumped over 15 percent, pushing its market cap back over 10 trillion won, a 65 percent rebound from January lows.

Escalating US-China rivalry

The resurgence in Korea's shipbuilding stocks is closely tied to the US's escalated tariff strategy against Chinese steel, prompted by union petitions in March and reinforced by Democratic senators in early April.

"Until March, I was doubtful about the benefits for Korean shipbuilders from the US-China trade tensions. The US only makes up 15 percent of global container imports and much less for exports, with even smaller figures for other ship types," said Han Young-soo, an analyst at Samsung Securities.

However, the narrative shifted significantly following a White House announcement on April 16. President Joe Biden announced potential tripled tariffs on Chinese steel and aluminum and also a probe into China’s trade tactics in shipbuilding. This aggressive stance was likely influenced by the looming threat of former President Donald Trump's potential reelection and his promise of severe trade restrictions against China.

Despite the promising surge in stock values, analyst Han cautioned that the direct relationship between Chinese steel exports and the operations of Korean shipbuilders remains unclear.

"While it's possible that US sanctions might drive up Chinese steel exports to non-US markets, reducing the price of steel plates used in shipbuilding and potentially boosting Korean shipbuilders' profitability, this scenario rests on too many assumptions," he explained.

Han also pointed out potential loopholes in direct sanctions on Chinese-built ships. Shipowners might bypass these sanctions by rerouting their fleets, diluting any potential benefits to Korea's shipbuilding industry.

"China produces half the world's ships, leaving few alternatives. Korea, while a major competitor, faces significant constraints from a labor shortage in ship construction, rather than a lack of orders," he added.

Upbeat investor sentiment

Ultimately, Samsung Securities analyst Han said, "I’d say that overall, the surge in stock prices for Korean shipbuilders due to the US-China trade war cannot yet be dismissed as purely speculative. Fundamental indicators of the sector remain strong.”

"Beyond the US-China trade friction, key indicators like escalating ship prices -- nearing historical peaks -- and new orders for Korean yards hitting 40 percent to 110 percent of their annual targets signify robust health in the sector,” Han added.

Analyst Lee Bong-jin from Hanwha Investment & Securities gave another positive outlook based on the industry’s demand cycle. "We're approaching a major renewal phase for ships that were originally ordered in the mid-2000s. Predictions suggest a rebound in ship orders that should carry us through to 2026," he said.

Lee added that the ongoing trend of a weakening Korean won further adds to this advantage by making its vessels more price-competitive internationally.

Analyst Han Seung-han from SK Securities' research center also concurred with the general expert consensus about the limited implications of US-China trade wars. "Korea's major shipbuilders, with order books filled for over three years, face limited domestic demand unless US sanctions are so significant as to shift the competitive landscape to offset higher costs and tight availability," he said.

However, he said, "US policy of curbing China's influence in shipbuilding seems set to persist, regardless of who wins the upcoming presidential election. This should keep investor confidence in Korean shipbuilding steady in the foreseeable future."