Raw Material Price Jumps Again

“Raw Materials Crisis” Arises Again-

Hyundai Hysco, Dongbu Steel, and Union Steel have recently increased the price of cold-rolled steel plates and zinc galvanized plates by 60,000~70,000 won per ton. This is due to the fact that the price for hot-rolled steel plates imported from Japan has been set at $600, increasing by $50 per ton.

The price for ship plates, which domestic shipbuilding companies import from Japan, has jumped by $50 per ton, reaching the $670 mark for April to September of this year. Accordingly, plate manufacturers including Posco and Dongkuk Steel are expected to increase their prices.

It is forecasted that the price for iron ore will also jump.

According to Posco, the iron ore price is being negotiated with Australia’s BHP and Brazil’s CVRD, but there is difficulty from the demands of such a high cost. Some are predicting that the price will be settled at around $38 per ton, jumping by 65 percent from last year.

Price for coking coal (soft coal) has already risen by more than two-fold. Posco’s imported price for coking coal was contracted at $125 per ton at the end of last year, jumping by 119 percent from the previous year.

Zinc was priced at $1,351 per ton, rising by 21.3 percent from the fourth quarter of last year and 26.2 percent from just a year ago. This is the highest figure in eight years since 1997.

Jang Sang-shik, senior researcher at the Trade Research Institute, said, “The price for raw materials has already increased greatly last year, and with the additional rise this time, the burden on shipbuilding, automobile, and electric household appliance companies will become even heavier.

Why are raw material prices increasing? This is because, centering on China, the supply cannot meet the highly increasing amount of demand.

During last year, China’s steel import increased by 5~12 percent on each product, and showed the highest increase in the world. As the shipbuilding business took on a favorable turn, Korea’s plate import increased by 62.7 percent from the year before.

However, by the nature of steel and non-ferrous material processing business, it is difficult to increase production, and so the imbalance between supply and demand is continuing.

In addition, with the weak dollar, raw material exporting companies are raising the price. In the case of steel, large blast furnace companies such as Posco and Japan’s JFE Steel will be undergoing repair and improvement during the first half of this year, and so production will be decreasing, which is also stimulating the increase.

Alert in Cost Price Reduction-

Steel products comprise 12 percent of the production cost in the shipbuilding business, and shipbuilders are prospecting that if the plate price increases by 10 percent, the profit rate will drop by two percent.

Accordingly, these companies are pushing for “cost linkage on orders,” in which the fluctuation in the plate price will be reflected in the cost, starting this year.

Hyundai Motors is putting effort in reducing the cost, and has recently developed a method to reduce the by-products when molding steel plates.

Ki-Jeong Ko Do-Young Kim koh@donga.com nirvana1@donga.com