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POSCO's Steel Price Hikes Hit Industries All Around |
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administrator |
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2011-04-22 14:36:25 |
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POSCO's announcement to raise prices for its benchmark steel product last week was perhaps the corporate world equivalent of throwing water on red hot metal.
The decision by the world's fourth-largest steelmaker, echoed by other domestic mills planning their own price hikes, has ignited an explosive reaction among companies in construction, shipbuilding, automotives and other industries in what appears to be shaping up as a full-blown conflict.
POSOCO raised the price of its hot-rolled steel by 25 percent to 850,000 won ($760) per ton from this month, which marks the first price increase by the steelmaker since it abruptly cut it prices by 20 percent in May last year. Hyundai Steel, the country's No.2 steelmaker, also raised prices of its major steel products by up to 23 percent to match POSCO's hot-rolled steel and plate prices. The companies have cited higher cost of raw materials such as iron ore and coking coal for the more expensive price tags.
It bears further watching whether the effect from elevated steel prices would be broad enough to visibly influence average consumer prices, but for some businesses, the blow is direct and severe.
Some steelmakers have already ceased their supply of bars to many Korean construction companies, including major builders such as Samsung C&T, Daewoo Engineering and Construction, GS Engineering and Construction, Daelim and Lotte Engineering and Construction, with the pricing dispute turning even uglier.
Hyundai Steel and Dongkuk Steel Mill had set the prices of their 10 millimeter steel bars at 791,000 won per ton for their April shipments, the biggest hike since February when they raised the prices by 50,000 won to 741,000 won per ton. The construction companies, on the other hand, are saying they can pay only 741,000 won per ton for the April supplies.
The builders, who accuse the steelmakers of a virtual collusion, are considering buying steel from foreign mills instead and even threatening to refuse payment for the bars they received in April. The more desperate of the firms have already been refusing to pay for their steel orders from earlier months as well and insist they won't pay a penny until an agreement over price is reached.
``This is as low as we can go. The new prices don't reflect the increase in raw material cost as much as we wanted to as we considered the difficulties currently experienced by our clients,'' said an official from Dongkuk Steel Mill.
Pinched from above and below
The current situation has alarmed the government, which fears the possibility of halted construction projects and escalated prices of new homes in a country already struggling with housing costs.
This had the Ministry of Knowledge Economy officially requesting POSCO and Hyundai Steel to suppress the prices of their steel products, while the Ministry of Land, Transport and Maritime Affairs is also vowing to be more assertive as a referee in the fight between steelmakers and builders.
However, the steelmakers are balking at the government pressure to keep their product prices at bay, when raw material prices continue to climb and threaten to eat up their profit margins.
POSCO's stocks were trading at below 500,000 won per share for the first time in six months last week, while Hyundai Steel's shares also dipped despite the excitement over the company starting full production of its first-ever integrated blast furnace.
Although no one from POSCO or Hyundai Steel would say it outright, there are grumblings within the industry that the government is treating constructions companies with kid gloves and the rest with boxing gloves.
``The pressure from government is a concern, as it could discourage steelmakers from making further price raises. However, the government efforts may not be enough to prevent steelmakers from raising their prices again, when the companies are feeling the pinch from the unfavorable conditions,'' said Choi Mun-sun, an analyst from Korea Investment and Securities.
Carmakers, shipbuilders apprehensive
With elevated steel prices reeling construction companies, shipbuilders and carmakers, who account for a larger part in the country's export machine, fear whether they could be next. And, according to some economists, the impact may not stop even there.
``Naturally, the steel industry has a broad impact over other industries in the economy, and the rise in steel prices could have an overall impact on consumer prices,'' said Park Eun-soo, a researcher from the Korea Development Bank (KDB) Research Institute.
``Granted, the effect of the raised steel prices might not be reflected 100 percent in consumer prices, especially considering that the strengthening won may provide a cushion. However, it's obvious that the country should prepare for the possibilities of inflation triggered by rising raw material prices and continued low interest rates.''
POSCO raised the price of its cold-rolled steel products, used for automobiles and electronics devices, by 180,000 won per ton to 965,000 won, which represents a near-23 percent increase. The company's price of plates used for shipbuilding rose nearly 19 percent to 900,000 won per ton.
The changes may lead to a tangible effect for consumers ― the country's carmakers raised the prices of their vehicles in 2008 after steel prices hiked rapidly. However, industry watchers say that the possibilities of cars becoming more expensive are low, considering that the current steel prices represent a similar level to 2008's.
``The carmakers raised the prices of their vehicles by around 2 percent in 2008, when they were buying steel at around 935,000 to 965,000 won per ton. So it was basically the same price the steelmakers are demanding now, and it's not like the carmakers made their vehicles any cheaper when steel prices dropped in 2009,'' said an industry official.
``It's hard to lower the prices of cars once they are raised, so the automakers will be extremely careful about bumping the price tags.''
Shipbuilders, who have suffered from depleted orders during the global economic downturn, are frustrated about the timing of the increased steel prices when the industry is just about ready for a turnaround.
Cited
The Korea Times by Kim Tong-Hyung/thkim@koreatimes.co.kr
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