South Korea: Small and medium mills find tough to hike steel prices

South Korea's primary mills have been increasing steel prices lately on the back of soaring raw material costs, particularly in January-February, 2022. However, small and medium-sized steel manufacturers are finding it difficult to increase prices this year against CY'21.

Further price hike on anvil

In 2021, POSCO and Hyundai Steel increased automobile steel sheet prices by KRW 170,000/t ($140/t) in H1 and H2 after firms negotiated with automobile manufacturers. Currently, the prices of hot-rolled steel have moved up by KRW 600,000/t ($493/t), while prices of high-carbon steel hot-rolled products rose by KRW 300,000/t ($247/t) compared to last year.

It is expected that the steel sheet prices will rise further this year on soaring raw material (iron ore and coking coal) prices.

In December 2021 and January 2022, major mills cut HR prices by KRW 50,000/t ($41/t). On the other hand, they increased prices by KRW 50,000/t ($41/t) in March 2022 and are likely to further lift prices by KRW 100,000/t ($82/t) in April, but, due to decline in production and profitability, it seems that such a huge price hike will have an impact on end-users.

Due to increased raw material costs, mills were not able to gain huge profits in CY'21. Moreover, the high carbon cold-rolled industry, which produces automobile parts, along with material and drawn steel pipe makers, are concerned that the hike in supply prices will continue this year, which is less than the increase in the raw material purchase prices.

Construction activities cool down, making it difficult to increase prices

Demand from the construction sector remained sluggish. On the other hand, raw material prices were increasing rapidly which was raising concerns whether these would get absorbed in the selling price.

In the case of structural steel pipe makers, while raw material prices rose by KRW 150,000/t ($123/t) in the third quarter of last year, they were unable to raise product prices due to reduced demand and intense competition for orders.

Structural pipe companies have been raising prices aggressively due to the recent decline in the supply of raw materials such as hot rolled products. However, it is unlikely that they will be able to pass on higher raw material costs in their selling prices.

Nippon Steel to adopt new cost-reflection system

Nippon Steel recently agreed to negotiate the unit price and quantity before delivering to Toyota Motors. For exports sales, the prices and quantities of automotive steel sheets are already negotiated in advance. Similarly, Korean mills should make efforts to establish such a system and should have a mutual agreement..

In the case of domestic parts makers, it is difficult to justify a demand for an increase in the supply unit price due to a rise in cost because they are asking for compensation for the shutdown of factories due to delay in delivery.

It is to be noted as well that steel for construction also takes a considerable amount of time to be delivered to the site.

Therefore, there is need for a system whereby end-user company and steel supplier are able to grow their business, so that if cost comes down, the delivery unit price can also be lowered just as it happens when the cost increases.

Note: This article has been published in accordance with an article exchange agreement between SteelDaily and SteelMint.