Shipbuilding material prices have increased by 10%, causing significant hardship for South Korean shipbuilders.
2018-08-08 09:00
Under pressure from steel manufacturers, South Korean shipbuilders have had to accept the reality of rising steel prices. In the current context of a lack of new orders, the increase in steel plate prices will further exacerbate the losses of South Korean shipbuilders.
It is understood that South Korean shipbuilders and steel manufacturers recently reached an agreement to raise the wholesale price of steel plates again this year by 50,000 South Korean won (approximately US\$44.39) to US\$70,000 per ton, a near 10% increase. Industry sources say the latest price increase will bring the price of steel plates to over 700,000 South Korean won per ton. Previously, South Korean steel manufacturers insisted they could no longer postpone price increases given rising raw material costs, and the three major South Korean shipbuilders—Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding—eventually agreed to the steel manufacturers' price increase request.
It is understood that the new steel plate prices will be applied from the second half of this year, meaning that steel plates ordered in July will be able to be marked at the new price.
Steel plate is a core material in shipbuilding. Data from the Korea Shipbuilders & Offshore Shipbuilders Association (KOSHIPA) shows that steel plate accounts for 15% to 20% of the total shipbuilding cost.
With the continued increase in steel plate prices, the South Korean shipbuilding industry is concerned that shipbuilders' net profits will further deteriorate. In fact, affected by the increase in steel plate prices, Hyundai Heavy Industries and Samsung Heavy Industries incurred cumulative losses of 641.7 billion and 739.7 billion South Korean won, respectively, from the fourth quarter of last year to the second quarter of this year. Steel plate prices are usually reflected in shipbuilders' earnings one to two years after receiving orders.
In the first half of this year, South Korean steel plate prices have already increased by 50,000 South Korean won. In July, KOSHIPA called on steel manufacturers to maintain the current price of thick steel plates, stating that if the price of thick steel plates continues to rise by 50,000 South Korean won in the second half of the year, it will add an extra 300 billion South Korean won to the manufacturing costs of shipyards.
However, major steel manufacturers, including POSCO and Hyundai Steel, are expected to continue raising steel plate prices. These companies believe that, considering the challenges facing the shipbuilding industry, steel manufacturers have provided low prices to shipbuilders for many years.
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