Domino Price Increases from Rebar to Scrap... Construction, Automobile, and Shipbuilding Face Urgent Cost Hikes (Comprehensive)

Sharp Rise in Iron Ore and Thermal Coal Prices
Rebar Industry Demands Contract Price Increase
Cement Industry Appeals Against Price Pressure

[Asia Economy Reporter Oh Hyung-gil] As raw material prices surge due to Russia's invasion of Ukraine, economic damage is becoming a reality across domestic industries. With the prices of iron ore and thermal coal rising, steel product prices have increased, putting the shipbuilding and automotive industries on high alert for cost management. Construction sites are also being hit hard by price hikes in rebar and cement.

According to the industry on the 7th, Hyundai Steel raised rebar prices for the second consecutive month following last month. After increasing prices by 29,000 KRW per ton last month, they raised them by 31,000 KRW this month, bringing the rebar price close to 1,022,000 KRW per ton. This is the first time the base price of rebar has exceeded 1 million KRW.

For steel pipe products, a price increase of 100,000 KRW per ton was applied starting from shipments on the 2nd. Due to continuous price rises of Chinese and Japanese products, they have no choice but to reflect the increased costs.

SeAH Besteel also raised prices for special steel products by up to 150,000 KRW per ton starting from shipments on the 7th. This is because the prices of alloy raw materials such as chromium and molybdenum are strong, and energy costs like thermal coal continue to rise.

The steel industry has not yet suffered direct damage as raw material imports have not been interrupted since the Ukraine crisis, but there are concerns that long-term disruptions in raw material and semi-finished product supply are inevitable.

[Image source=Yonhap News]

However, damage to related industries is already spreading due to the increase in steel product prices. The immediate rise in rebar prices is increasing cost burdens at construction sites, and rebar suppliers are demanding contract price increases due to soaring construction material and labor costs.

Domestic cement companies, which heavily rely on Russian thermal coal, are also complaining about price pressure. The cement industry recently notified the ready-mix concrete sector of an 18% price increase, raising cement prices from 78,800 KRW to 93,000 KRW per ton. The ready-mix concrete consortium is also reported to have conveyed their intention to raise ready-mix concrete prices to the construction industry.

With price hikes for shipbuilding plates and automotive steel sheets also anticipated, the shipbuilding and automotive industries are engaged in tough negotiations with the steel industry.

The problem is that this steel-driven price surge is unlikely to be resolved in the short term. Even if alternative import sources are secured, it will take considerable time for the raw material price increases triggered by the Ukraine crisis to subside.

Due to market intervention by the Chinese government, iron ore prices, which had fallen to 136.89 USD per ton on the 25th of last month, rose by more than 6% to 145.14 USD on the 4th within a week. Especially for thermal coal, which accounted for 16% of total usage imported from Russia last year, prices surged by a whopping 22.2% last week alone, reaching 172.10 USD per ton.

Scrap steel prices also soared by 85.6% compared to the same period last year. Russia is a net exporter of scrap steel following the European Union (EU), the United States, and Japan. Of the approximately 4.8 million tons of scrap steel imports, 573,000 tons come from Russia, accounting for about 13% of the total.

Europe's steel market is expected to become even tighter due to reduced imports from Russia and Ukraine and decreased operating rates caused by soaring energy prices, with steel prices also expected to rise sharply.

Researcher Bang Min-jin of Eugene Investment & Securities diagnosed, "The Ukraine crisis is not only affecting supply and demand but also stimulating raw material prices, adding upward pressure on steel prices."