[Ferro-Alloys.com] The Korean steel industry is suffering from a double whammy — a steep rise in costs and a demand cliff following the spread of COVID-19. Although price hikes are urgently needed in view of worsening profitability amid rising production costs, it is not easy to raise prices because of a plunge in demand for steel from the automobile industry, a major customer of steel.

The price of iron ore stood at US$102.48 per ton as of June 26. The figure represents a 25 percent rise from US$82.44 on Feb. 7, according to the Resource Information Service of Korea Resources Corp. on June 29. The price of iron ore surpassed US$100 per ton in early June for the first time in about 10 months and has since remained at the level.

Expectations of a recovery in demand due to China’s economic stimulus measures and operation disruptions at Vale of Brazil, the world’s largest steel supplier, led the price hike.

As the price of iron ore soared, the steel industry’s trouble has deepened. Profitability is bound to worsen due to increased cost burdens amid a sharp drop in demand due to the COVID-19 crisis.

POSCO and Hyundai Steel, which rank first and second in the Korean steel industry, are also going through extremely difficult business conditions. POSCO’s operating profit plunged 42 percent on year to 705.3 billion won in the first quarter of 2020, and is expected to fall nearly 70 percent on year to 320 billion won in the second quarter.

Hyundai Steel has been suffering from operating losses since the fourth quarter of 2019. The steelmaker is expected to post an operating loss of 27.5 billion won for the third consecutive quarter in the second quarter of 2020.

Under these circumstances, the steel industry is discussing price hikes with corporate customers such as automakers and shipbuilders. Major steel companies such as POSCO and Hyundai Steel are negotiating with shipbuilders on prices of steel plates, but no progress has been made.

Earlier, POSCO and Hyundai Steel had announced that prices of major products such as automotive steel sheets and thick plates would go up in the first half of 2020. But they have not translated their announcement into action because automakers and shipbuilder are also suffering from worsening business results due to the COVID-19 crisis.

However, the steel companies plan to push for a price hike more strongly in the second half of this year as they have no choice. This is because major steel companies in China among others are already raising prices, and with the resumption of production by downstream industries such as the automobiles and shipbuilding industries, the steelmakers will secure ample justification to use a price hike card when sales recover. POSCO, Hyundai Steel and others are reportedly considering raising prices in the third quarter.

Source: Business Korea

• [Editor:tianyawei]