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By Nam Hyun-woo
POSCO, Hyundai Steel and other steelmakers are at odds with shipbuilders as they have failed to narrow their differences over prices for thick plates of steel for ships, according to industry officials, Sunday.
Steelmakers are seeking hikes in plate prices, citing soaring iron ore costs. But shipbuilders, including Daewoo Shipbuilding & Marine Engineering (DSME), Hyundai Heavy Industries and Samsung Heavy Industries, want a price freeze amid sluggish global demand for ships.
Their feud has escalated since the shipbuilders have requested the government to intervene in negotiations and help keep steel prices at current levels, which has angered steelmakers, according to the officials.
Shipbuilders and steelmakers have been in negotiations over prices for 6 millimeter or thicker plates for the second half or the third quarter of this year since July, but have experienced a stalemate in their negotiations.
Depending on the companies, shipbuilders and steelmakers have quarterly or half-yearly negotiations on the prices of the plates. After the price is set for a certain period, shipbuilders make payments retrospectively.
In the first half of this year, steelmakers mostly froze their thick plate prices at around 700,000 won ($586) per ton, but they are now demanding an average 30,000 won to 40,000 won hike.
"Steelmakers and shipbuilders are literally in negotiations for 365 days over prices, but the ongoing ones are especially in stalemate, as the two sides are not making any compromises with their demands," an official at a steelmaking company said asking not to be named.
"Steelmakers saw declining profits earlier this year, but kept thick plate prices untouched because the shipbuilding industry was in distress at the time. However, iron ore prices skyrocketed during the summer, and steelmakers have no choice but to demand realistic prices."
According to the Korea Resources Corporation, the benchmark 62 percent Fe iron ore price was $72.63 per ton, Jan. 4 but quickly soared to $88.39, Feb. 15; $104.30, May 24; and reached $122.20, July 5. Though the price has remained at around $90 since September, steelmakers said their negotiations are based on stored iron ore, thus the current prices are irrelevant to the negotiations.
However, shipbuilders are demanding a freeze, saying they are still far from a rebound.
During a Sept. 24 event held by shipbuilding companies, Korea Offshore & Shipbuilding Association Chairman and DSME CEO Lee Sung-geun said "the environment for shipbuilders is aggravating due to rising thick plate prices and labor costs", and, "Policy level interventions are required in thick plate price negotiations."
"Shipbuilders are destined to pay keen attention to thick plate prices because thick plate costs account for nearly 20 percent of the entire cost of building a ship," a shipbuilding firm official said.
"Since shipbuilding takes time between order and actual manufacturing, the vessels that companies are currently making are those ordered at low prices during the global shipbuilding industry slowdown. This does not cover the current price."
Shipbuilders and steelmakers refused to disclose any details of their negotiations citing confidentiality, but officials said keen attention is being paid to negotiations between POSCO and Hyundai Heavy as their decision may become a precedent for others.
