Korean shipbuilders and POSCO, South Korea largest steel maker, are on a collision course over the price of steel used for building ships with the low-priced Chinese products set to make a foray into the Korean market. The Korea Shipbuilders Association (KSA) said that major local shipbuilders are considering increasing steel imports from China to cut costs. Hyundai Heavy is expected to increase Chinese steel imports from the current 10 percent to 15-20 percent. Samsung Heavy also decided to increase Chinese steel imports by solidifying partnerships with Chinese steel makers. Daewoo Shipbuilding and Marine Engineering, which has not used Chinese steel, are also in talks with Chinese steel firms to import their products.
The moves are likely to be a serious setback to POSCO, already suffering dwindling profits due to overheated competition with Chinese rivals. Last week, the firm said it will lower prices of 11 steel products sold here by up to 70,000 won per metric ton as inventories are piling up due to supplies from China. China has been the biggest export market for POSCO, but it has become a serious contender since it started shipping low-priced steel products to Korea this year. POSCO has pushed to build production facilities in China but the future of those facilities are uncertain as the Chinese government barred overseas producers from taking controlling stakes in Chinese steel mills. China has been the world’s biggest steel producer since 2004 and its 264 steel makers supply one-third of the world’s steel. China steel exports to Korea soared to 4.12 million tons in the first half of the year, up from 1.59 million tons in the same period last year, with Chinese products accounting for about 40 percent, according to the Korea Iron and Steel Association.
Having built 14.76 million tons of ships, or 37 percent of production worldwide last year, Korean shipbuilders are now beefing up construction of high-value-added vessels such as the liquefied natural gas carriers priced over $200 million, 10,000 TEU (20-foot equivalent unit) container ships, as well as floating production storage and offloading vessels that involve high-end technologies. A stable supply of premium steel products, including thick plates, heat-treated materials and steel used in low temperatures, are necessary for building such vessels.