Price Hike of Steel Plates Sparks Dispute Between Steelmakers and Shipyards

SEOUL: South Korean Steelmakers and local shipyards disagree over the increased prices of thick Steel Plates used for shipbuilding. The Steel manufacturers, including industry leader POSCO, are advocating for a price hike of 6 millimeter or thicker Plates, citing increasing costs of iron ore and electricity rates in Asia's third-largest economy. In contrast, shipbuilders such as Hyundai Heavy Industries Co. are urging Steelmakers not to raise prices, arguing that it would negatively impact their performance by creating a considerable burden.

Shipbuilding and Steel companies are highly impacted by the surging prices of thick Steel Plates, which make up approximately 25% of the total shipbuilding costs. The prices of thick Steel Plates continue to remain elevated despite a 100,000 won (US$75) per ton reduction by local Steelmakers in the previous year. At present, the cost of Steel Plates ranges between 1.1 million to 1.2 million won per ton, whereas it was around 600,000 won per ton in the year 2020.

Due to the spikes in raw material costs during the COVID-19 pandemic, Steel Plate prices have been steadily increasing. Unfortunately, this trend may lead to losses for shipbuilders, as ships are typically constructed one to two years after orders are received. If the per-ton price surpasses 1.2 million won or more, the financial impact on shipbuilders could be significant.

Shipbuilders and Steelmakers hold biannual negotiations on Plate prices, with retrospective payments made by shipbuilders after a certain period. Steelmakers have cited increased iron ore and electricity costs as the reason for raising thick Plate prices. The international prices of iron ore have surged from $80 per ton in the previous year-end to approximately $100 this year.

South Korea is set to increase electricity rates again for the second quarter of the year in response to significant losses incurred by state-run utility Korea Electric Power Corp. The rate increase follows a rise of 13.1 won per kilowatt hour for the period from January to March. Reports suggest that a 1 won per kilowatt hour increase will result in a cost increase of 10 billion won for Steelmakers, leading to higher Steel prices. As a result, that thick Steel Plate prices may increase by over 100,000 won per ton.

An increase in Steel Plate prices within the first half of this year. The price hike seems unavoidable due to higher rates for industrial electricity and an almost 50 percent surge in iron ore costs since November last year. This increase in cost is expected to add more financial pressure on local shipbuilders, who are already grappling with sluggish orders and rising expenses. To survive the prolonged slowdown, many have been selling off non-core assets and cutting jobs.