South Korean steel industry is worried about rising production costs due to increasing prices of steelmaking raw materials (iron ore and coking coal). They expect, this uptrend in raw material prices will continue in the short-term as the global trade could remain impacted by the ongoing Russia-Ukraine crisis.
The industry insiders pointed out that the possibility of trade sanctions with Russia is increasing in the future which may hit international steel trade. Although the volumes traded between Russia and Ukraine are not large but there are growing concerns that this ongoing tension will push up logistics costs with longer lead times along with disruptions in exports of products such as auto parts.
It should be noted that South Korea’s major automobile and electronics companies have their production facilities in Russia. Hyundai Steel-Kia Motors has a production unit of 230,000 t per annum while Samsung Electronics has a TV and washing machine production plant in Kaluga.
Rising raw material prices may curb demand growth
It is pertinent to note that Russia s a major producer and supplier of coking coal and steel slabs. Hence, prices of these products will likely rise in the short-term.
Because of Russia-Ukraine war, crude oil prices have crossed $90 per barrel and the prices of brent crude from the North Sea are above $95 per barrel. The rise in crude oil prices will boost iron ore and coking coal prices as well as increase the logistics costs.
Meanwhile, iron ore prices have touched the level of $130/t and those of coking coal have reached $440/t, resulting to a hike in steel prices. However, market participants are concerned that escalating raw material prices could further boost steel prices.
On the other hand, demand has been low in winters and if steel prices continue to rise, it may adversely affect the demand recovery.
Note: This article has been published under an article exchange agreement between SteelDaily and SteelMint.
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