South Korea’s major shipbuilders and steelmakers have been in talks over a steel price hike for weeks, but they still face difficulties narrowing their differences, industry sources said Tuesday.
Last week, the Korea Offshore & Shipbuilding Association urged top steel producer POSCO and No. 2 player Hyundai Steel Co. to cut the prices of thick steel plates used for shipbuilding, adding that local shipyards are struggling with falling prices for their products and increased competition.
The association claimed that prices of iron ore, the raw material for steelmaking, have suffered ups and downs since late last year after posting a decline for two straight years. It called for the steel industry to reconsider the price hike plan, as it could further worsen shipbuilders’ profitability.
In contrast, POSCO and other players are demanding that the steel plate prices be increased in tandem with a rise in the price of iron ore.
Usually, the thick steel plates account for roughly 20 percent of shipbuilding costs, which means a change in their price will have a far-reaching impact on steelmakers, automakers and shipbuilders.
South Korean shipyards, led by Hyundai Heavy Industries Co., are still struggling to cut costs through rotational leave for their workers and shutting down dry docks idled amid a lack of orders.
For decades, the shipbuilding sector has been one of the key growth drivers for Asia’s fourth-largest economy. South Korea is home to Hyundai Heavy and two other top ranked shipyards — Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co.
But they have suffered a steep fall in new orders and faced cancellations for the past few years due to low oil prices and a downturn in the global economy, forcing them to cut costs through workforce reductions and asset sales.
Entering this year, local shipyards bagged more new orders than expected, but the rise in new orders does not immediately mean the start of shipbuilding work. Rather, a decline in order backlog is of serious concern as they fulfill deliveries.
The country’s top three shipyards suffered a combined operating loss of 8.5 trillion won (US$7.53 billion) in 2015. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and an industrywide slump, with Daewoo Shipbuilding alone posting a 5.5 trillion-won loss.
In 2016, Hyundai Heavy managed to post profits, but the other two suffered losses.
The top three players conducted massive self-rescue plans to stay afloat, which included slashing 20,000 positions, amid the worst slump in their histories.