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HOME > CUSTOMER CENTER > NEWS |
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| TITLE |
Churning Out Steel Through Rough Times |
| WRITER |
administrator |
DATE |
2008-09-25 09:12:06 |
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Churning Out Steel Through Rough Times
By Jane Han
Staff Reporter
Steel makers are bracing to enjoy another round of strong global steel demand, but it's not going to be easy business for them this year, as the essential metal sector is one of the strongest-hit industries by surging raw material prices.
The global supply of iron ore, a key ingredient used to make steel, is currently dominated by just three mining companies, led by Vale and closely followed by BHP Billiton and Rio Tinto. South Korean steel giant POSCO, together with its alliance partner, Japan's Nippon Steel, agreed to pay Vale 65 percent more for iron ore starting April 1.This was the sixth consecutive increase in annual prices.
Because the first price agreement between major steel companies and iron ore makers usually sets the industry's benchmark price, most ― except for the three iron miners ― were unhappy with the deal.
European steel makers outwardly criticized the 65 percent increase, as they shunned the overwhelming market power held by a few dominant mining giants.
``Over-concentration in the supply chain of steel makers has resulted in an explosion of prices,'' AFP quoted Gordon Moffat, director of the Eurofer trade association representing European iron and steel makers, as saying.
He warned that the extra costs will be directly passed on to consumers.
And this was exactly what happened when POSCO CEO Lee Ku-taek turned around and said the hike in iron ore costs will inevitably lead to a boost in steel prices starting in April.
``With raw material prices soaring, wouldn't it be necessary for us to raise steel prices?'' the head of the world's fourth-largest steel maker told reporters after the company's annual shareholders' meeting in February, less than a week after the agreement was made with Vale.
POSCO had already fixed up its hot-rolled steel prices by 11.5 percent and cold-rolled steel prices by 10.8 percent from February, as did the country's second-largest steel company, Hyundai Steel, which raised its hot-rolled coil prices by 9.4 percent.
ArcelorMittal, the world's No. 1 steel producer, also announced a second price rise around the same time ― just after two weeks since its first ― citing a leap in iron ore costs.
Other smaller steel firms have started to tweak prices, blaming the sizzling price of raw materials.
Steel makers that enjoy their own iron ore mines will probably generate stronger profits with rising steel prices, but the situation is different for those dependent on imported iron ore, like POSCO and other domestic steel makers.
We're working to minimize the spillover effect by reducing internal costs as much as we can,'' said company spokesman Kim Dong-wan, adding that POSCO had cut costs by 1 trillion won yearly since 2006. ``These are times when we need to tighten our belts even more.''
Cross-Industry Domino Effect
As steel is a fundamental to some of the country's key industries, such as auto, electronics and shipbuilding, manufacturing businesses are anticipating to be hit by a domino effect.
Carmakers typically use one ton of steel sheet per auto, so the shortage of steel goods is expected to squeeze their production throughout this year.
Hyundai-Kia Group, the world's sixth-largest auto maker, said its margin drops 1 percent for every 20 percent jump in raw material prices.
Analysts, however, say shipbuilders, which are also heavy consumers of steel goods, will see less-than-expected damage because of the global order boom they are enjoying now.
Industry sources say that many shipbuilders have been steadily reflecting the rise in raw material prices on their goods to minimize a rapid surge.
Amid the ongoing price burden, however, demand for steel is showing no signs of slowdown due to active growth in the emerging markets, which build actively.
Ian Christmas, secretary general of the International Institute of Iron and Steel (IISI), recently said global steel use grew by about 5-6 percent in 2007 and similar growth is expected this year.
He cited China as one of the biggest factors, as well as demand from the other BRIC nations (Brazil, Russia and India).
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