The price tug-of-war between Korean shipping and steel companies in the second half (H2) of this year is coming to an end. The two sides have reached a consensus. The prices have risen but they are expected to be lower than POSCO’s initial offer. Although not yet made public, the prices of thick steel plates in H2 are estimated to be around 1.1 million won (about $943) per tonne, which will be about 57% higher than the 700,000 won (about $600) set in the first half of this year.
According to Korean media, the agreement on the sale price of marine heavy plates between Pohang Steel, Hyundai Steel, and the three major shipbuilding companies — Korea Shipbuilding & Marine, Daewoo Shipbuilding, and Samsung Heavy Industries — will be reached as early as this week. The prices will be slightly lower than the 1.15 million won per tonne (t) POSCO expected.
Pohang Steel (POSCO) and Korea Shipbuilding & Marine Corporation, which rank first in the Korean steel and shipbuilding industries respectively, will first reach an agreement, and other companies will follow suit and sign the agreements one by one.
South Korean industry analysts feel: “The final sale prices of marine heavy plates in the second half of this year are likely to be lower than the 1.15 million won ($980) per tonne previously proposed by steel companies, while the current price is 700,000 won/tonne ($600).”
In the recent second-quarter performance released by the three major shipbuilding companies, all of them have made provisions for losses in advance, totalling $1.775 billion, due to the expected significant increase in the prices of marine heavy plates in H2.
The cost of marine steel accounts for about 20% of the cost of shipbuilding, and for more than 70% of the cost of ship raw material supply. Therefore, Korean shipbuilding companies are very sensitive to steel prices.
High raw material prices impact plates
The prices of major raw materials such as iron ore have risen sharply. Marine thick plates account for 20% of total steel output of the mills. Therefore, mills are “big consumers” of iron ore and are eager to sell the material at market prices, to further improve revenues.
For this reason, the South Korean shipbuilding industry and the steel industry have locked horns over long-term contract prices.
South Korean steel mills demanded an increase in the prices of heavy plates from shipbuilders on the ground that iron ore prices have risen sharply.
Shipbuilders get large orders
The shipbuilders, meanwhile, have received a large number of new ship orders since the end of last year and their order book is full. In the first half of this year, South Korean mills led by POSCO and Hyundai Steel raised prices of marine heavy plates by 100,000 won per tonne (approximately $89/tonne) from last year’s levels to 700,000 won/tonne. For the second half, in June this year, the mills put forward a price of 1.15 million won/t, an increase of 450,000 won/t compared to the first half of the year.
In this regard, the shipbuilders stated that their order performance has been lower than the target value set at the beginning of the year for several consecutive years. Moreover, even if a large number of new ship orders have been received in the past six months, these still have to be reflected in actual performance. The “time difference” of 1 to 2 years makes it difficult to accept the plate price increases.
However, since the three major shipbuilding companies have secured orders for more than two years, their performance in the second half of the year may improve. Even if the highest price of heavy plates in the second half of the year is 1.15 million won/tonne, the three major shipbuilding companies have reflected the losses related to the price of heavy plates in the second quarter results in advance, thus additional losses can be avoided.
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