Posted on 07 Jun 2024
From January to April 2023, South Korea saw a significant surge in the import of Chinese steel plates, with volumes reaching 4.21 million tons, a stark increase from the 1.47 million tons imported during the same period in 2022. This influx of low-priced Chinese steel plates has created a complex landscape for South Korea's steel and shipbuilding industries, leading to intense price negotiations and strategic considerations.
Thick steel plates are thick steel sheets with a thickness of 6mm or more, primarily used in shipbuilding, wind power generation, and construction. In 2022, South Korea's top three shipbuilders, including HD Korea Shipbuilding & Offshore Engineering, used an estimated 4.3 million tons of these plates. Given that steel plates account for over 20% of the cost of building a single ship, fluctuations in their prices have a substantial impact on the shipbuilding industry's bottom line.
The domestic distribution price of steel plates in South Korea was around 1 million won (approximately $750) per ton as of the fourth week of May 2023. In contrast, Chinese steel plates were priced in the high 800,000 won (approximately $670) range per ton, nearly 10% less than domestic prices. This price disparity has made Chinese steel plates an attractive alternative for South Korean shipbuilders, despite past concerns over quality.
A representative from the steel industry commented, "Currently, the price negotiations for steel plates are fiercely ongoing. It is difficult to disclose the specific negotiation prices proposed by the steel industry." They further added, "However, everyone agrees that price reductions are difficult. The low prices of Chinese steel plates are significantly affecting the negotiations. In the domestic market, factors such as raw material costs, electricity rates, and labor costs make price reductions challenging. It is a process that requires mutual concessions and consideration."
The Biden administration's announcement on May 14 to increase tariffs on Chinese steel from 7.5% to 25%, effective from August 1 this year, adds another layer of complexity. While this move aims to protect the U.S. steel industry, it could lead to a surplus of Chinese steel being redirected to other markets, including South Korea. However, South Korea's steel exports to the U.S. have been subject to a quota since 2018, limiting the potential benefits from the increased U.S. tariffs on Chinese steel.
In response to the competitive pressure from Chinese imports, South Korean steel companies, including POSCO, Hyundai Steel, and Dongkuk Steel, are considering filing an anti-dumping complaint against Chinese steel products. A recent 'Steel Export and Import Issues Review Meeting' with the Ministry of Trade, Industry, and Energy highlighted the industry's concerns and the potential for legal action.
A shipbuilding industry representative noted, "The competitiveness of Chinese steel plates comes from their price. Although there was a tendency to avoid Chinese steel plates in the past due to quality issues, recent improvements in Chinese steel plate technology have made them more competitive, and Korean steel plates are losing out in terms of price competitiveness. Ultimately, Chinese steel plates are being chosen as an alternative."
The financial performance of key players in the first quarter of 2023 underscores the stakes involved. The top three shipbuilders—HD Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries, and Hanwha Ocean—achieved a combined operating profit for the first time in 13 years, with respective profits of 160.2 billion won ($120 million), 77.9 billion won ($58 million), and 52.9 billion won ($40 million). In contrast, POSCO reported sales of 15.442 trillion won ($11.6 billion) and an operating profit of 339 billion won ($255 million), marking a 6.9% decrease in sales and a 17.3% decrease in operating profit compared to the same period last year. Hyundai Steel also saw declines, with sales and operating profit figures of 5.9478 trillion won ($4.5 billion) and 55.8 billion won ($42 million), respectively, representing a 6.9% and 83.3% decrease.
As the domestic steel and shipbuilding industries navigate these challenges, the outcome of ongoing price negotiations and potential anti-dumping measures will be critical in shaping their future dynamics. The interplay between cost management, competitive pressures, and strategic responses will determine the resilience and profitability of these key sectors in South Korea's economy.
Source:Business Standard
