South Korea: Steel majors fail to raise prices of auto plates despite surging costs

• Steelmakers must negotiate a price for delivery of automotive sheets
  
  
• Nippon Steel and Toyota agree to JPY 20,000/t hike in delivery prices
  
  
• Small suppliers being rendered unviable due to surge in raw material prices
  
  

Since April, 2021, the prices of automobile steel sheets have increased by only KRW 120,000/t ($99.09/t) in the South Korean market after producers were successful in raising prices by KRW 70,000/t ($57.81/t) in Jul'21. However, negotiating an increase in steel sheet prices this year will be far from easy, a Steel Daily report indicates.

According to steel industry officials, steel major POSCO and Hyundai-Kia Motors are not being able to reach an agreement in the automobile steel plate price negotiations in the first half of this year. It is known that despite the rise in iron ore and coking coal prices, POSCO failed to raise the price of automobile steel sheets last year.

Although automotive steel sheet prices increased by around $99/t last year, it was far lower than the KRW 600,000/t ($495.53/t) increase for ordinary hot-rolled steel sheets. In addition, as the prices of iron ore and coking coal have been on the rise recently, the cost burden has increased, and market sources are of the view that the supply of steel sheets to Hyundai Motors is, in fact, a loss.

Nippon Steel shows the way

Despite this, the supply of automotive steel sheets by the leading manufacturers, including POSCO, continues which is believed to be ultimately detrimental to price negotiations. Japanese steel behemoth Nippon Steel, which is grappling with increasing cost burden due to the surge in raw material prices, has decided to negotiate with Toyota Motor Company on the principle that delivery can only be achieved when the price and quantity are determined.

Accordingly, in Feb'22, they agreed to raise the unit price for steel sheet to be delivered to Toyota by JPY 20,000 ($163.84/t) between April and September, and concluded the price negotiations before delivery. Steel industry officials are of the opinion that such a negotiation method should eventually be introduced in South Korea as well.

Steel producers prioritise delivery to automobiles and shipbuilding companies, but since products with undetermined prices are supplied first, it is unilaterally advantageous to demanding companies whose prices can be decided from a position of relative advantage if they do not negotiate on prices and simply hold on to them. It serves as a negotiating condition.

Auto parts suppliers at receiving end

Sources also pointed out that small- and mid-sized parts processing companies, which are at an inherently disadvantaged position in terms of price negotiations, have difficulties in reflecting costs properly and are, in fact, forced to unilaterally supply parts even while incurring losses.

A steel mill official said that prices of high-carbon hot-rolled products or materials used for pipe-making, which are often used for production of auto parts, were raised by KRW 300,000/t ($247.63/t) last year.

Companies directly purchasing general hot-rolled steel sheets and supplying them to auto parts suppliers are deeply worried that the sharp rise in raw material prices has actually rendered them unviable and these companies are mulling whether to stop supplies. Sources said that the market needs to be transformed into a fair trade market.

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