Steel prices projected to continue to rise

 Steel prices will likely continue to rebound in the second half of this year on China’s large-scale efforts to reduce steel supply, industry insiders said Tuesday.

Korea’s largest steelmaker POSCO plans to hike the price of hot rolled steel plates by 30,000 won ($26) per ton next month. This marks a total rise for the product of 150,000 won from January.

Hot rolled steel plate, produced by fusing iron ore, is the most basic flat product which local coil manufacturers negotiate prices over every month.

Hyundai Steel has also raised the rate by 70,000 won per ton, leading to a total increase of 120,000 won so far this year.

The price hikes, which reflect the rise in production costs, are projected to help steelmakers’ bottom lines.

Local steelmakers had struggled in the past five years as prices fell on oversupply of Chinese producers.

POSCO, while reporting record high sales of 35.3 million tons in 2015, saw its operating profits plunge by 25 percent on-year.

“As China’s supply-demand mismatch will likely be eased going forward, Chinese steel sheet prices are projected to rebound starting from August. This will be a boost to Hyundai Steel’s own price of the product, leading to about 850 billion won of operating profits,” said Park Hyeon-wook, an analyst from HMC Investment & Securities.

POSCO is also likely to report improved business results in the second half the year, the expert added.

In February, China‘s government announced that it would reduce the country’s steel production by around 150 million tons by 2020.

Chinese companies, consequently, started to cut down on supply, which has led to the overall rise of steel sheet prices. It is reported that starting from June 14, Beijing put into motion plans to produce 1.34 million tons less a week. The impact of the cut will be reflected in prices in the second half of the year, experts say.

Some are, however, cautious of projecting drastic price hikes as the iron ore rate has been on decline for the past six weeks.

The decreasing iron ore price will lower the production cost, which will ultimately make it harder for companies to hike the hot rolled steel plate price, sources said.

By Lee Hyun-jeong (rene@heraldcorp.com)