Steel Price Hike Troubles Shipbuilders

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 785,000 won a ton, an increase of 18 percent, its competitors are considering joining the rally to cushion the impact on soaring raw material costs.
``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,’’ an official from Dongkuk Steel told The Korea Times Monday. Dongkuk raised its price for steel plate to 820,000 won per ton in January this year.
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 percent 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.
``We might have to shoulder an additional 170 billion won a year due to the price increases by POSCO and a possible similar plan from Dongkuk Steel,’’ an official from Hyundai Heavy Industries said. The world’s biggest shipyard uses 1 million ton of POSCO’s shipbuilding plates per annum.
``The price increases by the nation’s two steel suppliers will cost our company an additional 100 billion won,’’ an official from Daewoo Shipbuilding & Marine Engineering said, 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 $850 per ton from between $625 and $645. The Japanese plates account for about 15 percent 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 tons of shipbuilding plates in 2008, while domestic steel providers are likely to supply 4.7 million tons including POSCO’s 2.5 million tons.
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.