Kawasaki Heavy May Buy China, Korea-Made Steel Plates

Kawasaki Heavy Industries Ltd., Japan’s third-largest maker of heavy machines, may buy steel plates from China and South Korea for the first time to build ships if domestic prices rise too much “We wouldn’t deny the possibility of using imported steel,” Nobumitsu Kambayashi, the president of Kobe, Japan- based Kawasaki Heavy’s shipbuilding unit, said yesterday in an interview. “If we fail to agree with domestic mills on prices and we find overseas-made steel offers an advantage in terms of quality, delivery and price, we will have to turn to it.”
Kawasaki’s comments come as Nippon Steel Corp. and JFE Holdings Inc. press customers to accept higher prices because of the increased cost of iron ore and coal, two key steelmaking raw materials. The move underscores the rising competition Japanese steelmakers face from China, whose five largest mills overtook Nippon Steel in terms of production last year, displacing it from its slot as the world’s second-largest steelmaker.
Kawasaki’s venture with China Ocean Shipping Group Co. in Nantong, eastern China, has already purchased a small amount of steel for use in vessel handrails and stairs from Shanghai-based Baosteel Group Corp. on an experimental basis, Kambayashi, 62, said. Like Kawasaki’s domestic shipyards, the Chinese venture buys higher-performance plates produced at Japanese mills including JFE.
Nissan Motor Co., Japan’s third-largest carmaker, is evaluating Baosteel’s products for global purchasing, the Chinese mill announced yesterday. Japan’s Mitsui Engineering & Shipbuilding Co. this year received a sample of plate produced by Posco, South Korea’s largest mill, and may use it after checking prices and services, spokesman Masatoshi Inui said yesterday in a phone interview.
Price Negotiations
Price negotiations for the six months to Sept. 30 may drag on for another month, Kambayashi said. Kawasaki Heavy shares rose 1.9 percent to 219 yen on the Tokyo Stock Exchange, compared with a 0.4 percent drop on the Topix index.
To curb costs, Kawasaki Shipbuilding is also seeking to use futures contracts to hedge against price volatility of steel plates, Kambayashi said. Vessels are typically delivered to customers about three years after contracts are signed, making it hard for shipyards to pass higher costs onto buyers if prices fluctuate.
“We’d like to make use of futures if we can,” Kambayashi said.
Iron Ore Futures
Deutsche Bank AG and Credit Suisse Group AG started offering so-called iron-ore swaps in 2008. The swaps allow users to fix prices in advance for single cargoes. While Kambayashi is “interested” in the plan, his company might still have trouble hedging costs since it doesn’t produce steel, he said.
The contract price of iron ore will rise more than 20 percent this quarter, JFE’s steel unit President Eiji Hayashida said June 22. This would follow a 90 percent gain in the preceding quarter.
Japanese mills and domestic yards are in the final stage of talks to raise plate prices by 20,000 yen ($225) a metric ton for the April-September period, the Japan Metal Daily said June 22, without giving price levels. Kawasaki Shipbuilding is still in negotiations and is asking mills not to raise prices, Kambayashi said.
JFE is Kawasaki’s largest steel supplier. The group was formed in 2002 through the merger of NKK and Kawasaki Steel, which was spun off from Kawasaki Heavy in 1950.
“Shipbuilders and steelmakers have closely worked together in the postwar period,” he said. “We should continue walking along together,” Kambayashi said.