South Korea’s steel plate prices for the domestic automobile and shipbuilding sectors are currently under negotiations. Automobile and shipbuilding industries are expecting prices to come down despite higher manufacturing costs amid soaring raw material prices.
Profitability in steel sheets low
In CY’21, Hyundai Motor recorded sales of KRW 117.61 trillion (largest since inception) while its operating profit rose significantly by 179% y-o-y to KRW 6.67 trillion.
Another auto major, Kia Motors, also saw record high in both sales and operating profit, while Hyundai Mobis recorded KRW 41.70 trillion in sales for the first time, while operating profit also increased by 12% compared to the previous year.
The rise in steel-making raw materials and finished steel prices has been significant in CY’21. For instance, prices of hot-rolled steel sheets rose to KRW 570,000/t ($470/t), while prices of automotive steel plates increased only by KRW 50,000/t ($41/t) in the first half of the year and KRW 120,000/t ($99/t) in the second half.
Despite this situation, the major reason for negotiations being tough is the perception that steel and raw material prices will edge down as companies performances improve y-o-y.
However, automobile manufacturers were not able to reflect these hikes last year because of the nature of contracts (long term).
Furthermore, considering the increase in raw material prices such as iron ore and coal in Q1CY’22, the possibility of a fall in raw material prices is unlikely, thus, prices of automobile steel sheets need to be more realistic.
Japan’s leading steel producer and automobile maker, Nippon Steel and Toyota, agreed to increase prices by JPY 20,000/t ($173/t) compared to the second half of FY’22 (Oct’21-Mar’22) during the price negotiations for automobile steel materials from Apr’22-Mar’23. This negotiation was different to the previous one, where prices were raised JPY 20,000/t in H2FY’22 along with a pre-decision method before the contact period expires.
Supply constraints
The negotiations for steel plates pricing for the shipbuilding sector is also being tough because, last year, a huge increase had taken place for the first time and in Q4 prices for the non-shipbuilding sector was adjusted. Therefore, shipbuilders are expecting prices to soften.
In addition, companies are trying to cover up the losses they incurred last year due to reflection of provisions for construction losses caused by the higher heavy plate prices.
The demand for shipbuilding heavy plates is expected to increase this year due to the improvement in order receipts last year and the advent of the steel cutting period. Therefore, it seems highly likely that shipbuilders will continue to demand more aggressive price cuts than last year.
Prices of heavy plates have decreased slightly by end of CY’21. But the prices for distribution are being raised in Feb’22 and Mar’22, since prices of raw materials for steel have risen further compared to last year.
POSCO’s Gwangyang Works No.4 blast furnace is under renovation. As a result, domestic crude steel production is falling, and imports from China are unlikely to expand due to China’s export policy.
Amid supply constraints, rise in production costs and increased cost pressure, heavy plate producers are not likely to adjust their prices in the near term.
Note: This article has been published in accordance with an article exchange agreement between SteelDaily and SteelMint.
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