Iron Ore Prices Up 40% in Two Months... Will It Affect Steel and Shipbuilding 'Thick Plate' Negotiations? (Comprehensive)

Chosun Dampens Suju March... Strongly Insists on Price Maintenance
Steel Industry Must Reflect Increased Costs in Delivery Prices Linked to Performance

[Asia Economy Reporter Oh Hyung-gil] As raw material prices soar, the price negotiations for shipbuilding steel plates between the domestic steel and shipbuilding industries are walking on thin ice.

Since the COVID-19 pandemic, the shipbuilding industry, which has struggled to secure supply due to reduced steel production in China, is strongly insisting on maintaining prices as the outcome of this negotiation could determine whether they can break even.

If steel plate prices rise again this year following last year, it would inevitably dampen the recent recovery in order volumes.

On the other hand, steelmakers argue that while maintaining prices at levels similar to last year, the recent surge in iron ore prices should be reflected in the delivery prices. Since steel plate prices are linked to performance, a tense tug-of-war between the industries is expected to continue this year as well.

According to the Korea Resources Corporation on the 7th, the market outlook indicator for iron ore has remained at the 'caution' level for two consecutive months this year.

As of January 28, the price of imported iron ore in China was $139.5 per ton, up $40 (40.3%) from $99.4 per ton on November 26. Although this is not as high as the over $200 per ton recorded in the third quarter of last year, price volatility remains significant.

The steel and shipbuilding industries plan to conclude negotiations this month on the delivery price of steel plates, which account for a significant portion of shipbuilding costs. Steel plates are hot-rolled steel sheets with a thickness of 6mm or more and are said to account for about 20% of shipbuilding costs. It is known that a 20,000 TEU ultra-large container ship uses about 50,000 tons of steel plates.

According to the Korea Institute for Industrial Economics and Trade, even a 10,000 KRW increase per ton in steel plate prices would lead to a cost increase of about 360 million KRW for ultra-large oil tankers and about 500 million KRW for ultra-large container ships. Losses can snowball depending on price fluctuations.

The shipbuilding industry emphasizes price stabilization for mutual coexistence. Having agreed last year to raise steel plate prices by 100,000 KRW per ton in the first half and 400,000 KRW per ton in the second half, marking the first increase in four years, voices are emerging that no further price adjustments should be made.

Especially, despite recording order achievements exceeding 7 trillion KRW last month alone in the new year, there are concerns that losses will be unavoidable if raw material prices, including steel plates, continue to rise.

The steel industry maintains a stance to keep steel plate prices at levels similar to last year. However, they see price increases as inevitable if raw material prices surge.

Hyundai Steel stated in last month's earnings conference call, "The price of shipbuilding steel plates in the first half of this year will be maintained at the level of the second half of last year," adding, "Although negotiations have not yet begun, given the high volatility of iron ore and coking coal prices, any increases or decreases will be reflected in the second half."

Senior Research Fellow Hong Sung-in of the Korea Institute for Industrial Economics and Trade said, "Even with forecasts of declines in iron ore and coking coal prices, if steel supply from Korea, China, and Japan does not increase, steel plate prices are likely to remain high for the time being," and added, "Close strategic cooperation is necessary to enhance the competitiveness of the steel and shipbuilding industries."

This content was produced with the assistance of AI translation services.