November 21, 2008

Steel price not to affect profit of large ship builders in China

It is reported that Chinese steel price jump would not affect the gross profit rate of ship builders as there is long term cooperation term between them and steel makers and the extant of increase for ship steel products is expected to be lower than that of other steel.

Industry analysts say that price for ship building steel plate picked up again since middle 2007 on higher iron ore and transportation cost. By the end of December 2007, the prices for 6mm, 10mm, 20mm ship plate have risen to CNY 6100 per tonne up by 35%, CNY 5800 per tonne up by 42% and CNY 5600 per tonne up by 30% respectively from the level in early 2007.

An expert with China Association of the National Ship building Industry said "The steel price increase is the most evident driver for the cost rise with ship builders and would reduce their profit margin directly."

Mr Gao xiaochun Researcher of CITICS said the average price increase rate for ship building steel is around 30% in 2007. He said "If the increase rate of ship steel price is equal to that of last year, the gross profit rate will be same with 2007. But it remains to see how steel price advances affect ship builders since steel makers have not confirmed the increase rate for ship plates. He said the rate would be smaller than that for other steel products since there are long term cooperation ties between ship builders and steel mills.”

Mr Gao xiaochun said "The extent is also dependent on the capability of cost transfer to end users by ship builders. It is certain that large ship builders would do a better job in terms of dealing the rising cost. I believe that the gross profit rate for large ship builder would be higher than that in 2007. As a matter of fact, large sized ship builders have talked with steel mills on steel purchase."

(Sourced from MySteel.net)