Falling Raw Material Prices... Will Heavy Plate Prices Freeze in the Second Half?

Steel and Shipbuilding Begin Negotiations for Thick Plate Prices in Second Half of the Year
Growing 'Freeze' Sentiment Amid Recession Concerns and Raw Material Price Decline

[Asia Economy Reporter Jeong Dong-hoon] As the steel and shipbuilding industries begin negotiations on the price of shipbuilding steel plates for the second half of the year, the upward trend in raw material prices has slowed, creating a mood more favorable to price freezes than increases.

According to industry sources on the 27th, domestic steel traders and shipbuilders have recently started negotiations on steel plate prices for the second half of this year.

Due to the rise in raw material and energy prices since the first half of last year, the price of shipbuilding steel plates has sharply increased. Prices rose by 100,000 to 400,000 KRW per ton since the first half of last year, pushing the steel plate price from 600,000 KRW per ton in 2020 to around 1,200,000 KRW. This was one of the reasons why shipbuilders, struggling with a 'order cliff,' could not escape operating losses. According to the Korea Institute for Industrial Economics and Trade, a 10,000 KRW increase per ton in steel plate prices adds about 360 million KRW in costs for ultra-large oil tankers and about 500 million KRW for ultra-large container ships. Steel plates are thick iron plates over 6mm and account for about 20% of shipbuilding costs. Shipbuilders and steelmakers typically negotiate steel plate prices twice a year, in the first and second halves.

The atmosphere for the second half negotiations is showing signs of change. This is because raw material prices such as iron ore and coking coal, which account for about 60% of shipbuilding steel plate costs, are trending downward. It is expected that steel plate prices will be frozen in the second half of this year as the sharp rise in raw material prices subsides. According to the Korea Resource Information Service, as of the 24th of this month, the price of iron ore was $115 per ton (148,637 KRW), down 5.85% (7.15 USD) from the previous week's average. Compared to the highest price this year on March 7, $162.75 per ton (210,386 KRW), it has plunged 29.33%.

The price of coking coal also fell 43% from the 52-week high in March to $376.81 per ton on the 20th. As raw material prices stabilize, the steel industry expects it will be difficult to justify a fourth consecutive steel plate price increase.

An industry insider said, "With the decline in raw material prices, steelmakers have lost the justification to raise prices," adding, "As the global economy is retreating, there is a high possibility of a price freeze as a measure of shared pain." The industry is concerned that if raw material prices fall and demand remains sluggish, attempts to raise steel product prices in the second half will face difficulties.

The sustained high exchange rate, hovering around 1,300 KRW per US dollar, is also a burden for steelmakers, as it increases the cost of purchasing raw materials such as iron ore and coking coal. A steel industry official said, "Given the large scale of US interest rate hikes and concerns about a recession, we are closely monitoring the possibility that demand weakness could become more severe than expected."

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