December 03, 2008
Steel price hike threatens Korean shipbuilders
Staff Reporter reported that South Korean shipbuilders, which have been enjoying improving profitability thanks to the won’s latest weakness and rising oil prices, are now faced with tough challenges steel price increases.
Ignited by POSCO’s recent decision to raise domestic prices of its cold rolled steel and shipbuilding plate to KRW 785,000 a tonne an increase of 18%, its competitors are considering joining the rally to cushion the impact on soaring raw material costs.
An official from Dongkuk Steel told The Korea Times that “We plan to raise the price of our shipbuilding plate by double digits in a week to cushion the burden of higher coking coal prices.”
Industry experts show mixed reactions concerning the impact of price increases of shipbuilding plates as some say South Korean shipyards have been able to absorb much of the earlier steel price hikes due to the Korean currency’s latest 10% depreciation. But there is concern that the price rise might dent the profitability of local shipbuilders in the short term as they have to pay more in buying the essential part for shipbuilding.
An official from Hyundai Heavy Industries said that “We might have to shoulder an additional KRW 170 billion a year due to the price increases by POSCO and a possible similar plan from Dongkuk Steel.”
An official from Daewoo Shipbuilding & Marine Engineering said that “The price increases by the nation’s two steel suppliers will cost our company an additional KRW 100 billion adding that his company will accelerate efforts to increase productivity to offset the burden.”
In early March, local shipbuilders agreed to an offer by Japanese steel plate providers to raise their prices to USD 850 per tonne from between USD 625 and USD 645. The Japanese plates account for about 15% of requirements at South Korean shipyards.
According to estimates from the Korea Shipbuilders’ Association, local shipbuilders are expected to use a combined 9.3 million tonnes of shipbuilding plates in 2008, while domestic steel providers are likely to supply 4.7 million tonnes including POSCO’s 2.5 million tonnes. It added that despite rising prices and the shipbuilding industry boom, steel makers are facing soaring costs as the tight coal supply is pushing them to the risky spot market.
