Steelmakers in talks with shipbuilders over price hike

South Korean steelmakers appear to be in the final stage of negotiations with shipbuilders over prices of thick steel plates, people familiar with the matter said Wednesday.

Posco, the country's largest steelmaker, has reportedly proposed a hike in the prices of thick steel plates -- a key material that accounts for about one-fifth of shipbuilding costs -- to 1.15 million won ($980) per ton.

The offer marked a sharp increase from the first half of this year when thick steel plates were sold at around 700,000 won per ton.

Steelmakers conclude separate deals with shipbuilders over prices of thick steel plates every half-year.

"We are still in negotiations and I think we can strike a deal at a reasonable level," a Posco official said.

Posco's proposed price hike is meant to reflect increased costs of iron ore, one of the main raw materials used in steel production. A hike in raw materials could eat into steelmakers' bottom lines.

The price of iron ore hit a record high of $237.57 per ton CFR China on May 12, a sharp hike from $91.67 in the same period last year, according to data from Korea Resources Corporation.

Kim Hyun-tae, an analyst at BNK Securities, said in a report in July that Posco could raise prices of thick steel plates at a time when demand for thick steel plates could go up sharply due to increased ship orders.

South Korean shipyards achieved more than half of their annual target in the first half.

Korea Shipbuilding & Offshore Engineering Co. (KSOE), the world's biggest shipbuilder by order backlog, won new orders for 156 ships and two offshore plants worth a combined $13.8 billion, accomplishing about 92% of its annual target of $14.9 billion.

KSOE is the holding company of three shipbuilders -- Hyundai Heavy Industries Co., Hyundai Samho Heavy Industries Co. and Hyundai Mipo Dockyard Co.

Korea Shipbuilding & Offshore Engineering Co. is in the final stage of negotiations with Posco, an official said.

He said the interests of steelmakers and shipbuilders do not run contrary to each other, an indication that Korea Shipbuilding & Offshore Engineering and Posco could strike a deal on prices of thick steel plates at between 1 million won and 1.15 million won per ton.

Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. -- achieved more than 60% of their annual order target in the first half of the year.

Daewoo Shipbuilding & Marine Engineering said it is in the final stage of negotiations with Posco and Hyundai Steel Co., the second-largest steelmaker.

An official of Daewoo Shipbuilding & Marine Engineering said a potential price hike could hurt the company's bottom line.

Daewoo Shipbuilding & Marine Engineering shifted to a net loss of 1.25 trillion won ($1.1 billion) in the January-June period from a net profit of 294 billion won a year earlier.

Samsung Heavy Industries said it has been in talks with Posco and Hyundai Steel, though it gave no further details. (Yonhap)