'Falling Raw Material Prices' Joseon-Steel Begin Negotiations on Second Half Hot Rolled Steel Prices (Comprehensive)

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 Declines

[Asia Economy Reporter Jeong Dong-hoon] As the steel and shipbuilding industries have begun 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 the industry on the 27th, domestic steel traders and shipbuilders recently started negotiations on steel plate prices for the second half of this year.

Due to the rise in raw material and energy prices continuing since the first half of last year, the price of shipbuilding steel plates sharply increased. Prices rose by 100,000 to 400,000 KRW per ton from 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 the 'order cliff,' could not escape operating losses.

According to the Korea Institute for Industrial Economics and Trade, if the steel plate price rises by 10,000 KRW per ton, the cost for a very large crude carrier increases by about 360 million KRW, and for a very large container ship by about 500 million KRW. 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.

As steel plate prices, which account for 20% of ship manufacturing costs, rise, shipbuilders have not improved their deficits despite a boom in orders. The three major domestic shipbuilders posted operating losses of about 1 trillion KRW in the first quarter.

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 rapid rise in raw material prices subsides. According to Korea Resource Information Service, as of the 24th of this month, the price of iron ore was 115 USD per ton (148,637 KRW), down 5.85% (7.15 USD) from the previous week's average. Compared to the highest iron ore price of 162.75 USD per ton (210,386 KRW) on March 7, the price has plunged 29.33%.

The price of coking coal also dropped 43% from its 52-week high in March to 376.81 USD per ton as of the 20th. As raw material prices stabilize, the steel industry expects it will be difficult to justify four consecutive steel plate price hikes. However, due to the economic downturn caused by inflation in the second half of this year and ongoing lockdown policies in China, the steel industry outlook is not bright, leaving the possibility that steel plate price negotiations will face difficulties again.

An industry insider said, "With the decline in raw material prices, steelmakers no longer have grounds to raise prices," adding, "Since 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 exchange rate hovering around 1,300 KRW per USD, maintaining a high exchange rate trend, is also a burdensome factor for steelmakers. This increases the cost burden 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 an economic recession, we are closely monitoring the possibility that demand weakness may become more severe than expected."

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