Market
Conference
Posco struggles under weight of iron prices
作者：1 发布时间：2010-05-06 文字大小：【大】【中】【小】
Steelmakers seek to invest in mines to break global oligopoly driving up costs
A recent surge in the price of iron ore has put pressure on local steelmakers, struggling with the increased costs.
National leader Posco recently raised prices of its products by around 20 percent, but in the longer term the company plans to increase its efforts to acquire its own sources of raw materials.
The world’s fourth-largest steel company by production recently announced it would invest $5 billion in overseas mines this year, joining rival steelmakers in hunting for the resource.
“We intend to procure 50 percent of the iron ore we use on our own by 2013, from the current 20 percent,” said Kim Dong-wan, a spokesman at Posco.
On April 15 the manufacturer said it would place a preliminary bid for a major stake in Zaporizhstal of Ukraine, a steelmaker that also owns iron ore mines with an annual production capacity of 4 million tons. Posco now partly owns over 20 mines overseas, including four iron ore mines.
“This is the best way for Posco to boost its self-sufficiency in iron ore in order to deal with the rising price of the material,” said Lee Chang-mok, an analyst at Woori Investment and Securities Co.
Posco recently signed a deal with Vale SA of Brazil agreeing to a higher purchase price for iron ore - $100 to $105 per ton - during the second quarter of the year, an increase of nearly 90 percent from a year earlier. The measure was a stopgap designed to keep the two companies trading while further negotiations took place.
“Posco has no choice. It has no bargaining power,” said Kim Min-su, an analyst at Shinhan Securities Co. “Over 66 percent of the iron ore supply is controlled by the big three iron mines.”
Vale, the world’s biggest iron ore producer, last month ended its 40-year practice of selling the commodity through yearly contracts and decided to renegotiate on a quarterly basis, after pushing a 90-percent price increase on Japanese steelmakers for quarterly contracts beginning April 1.
The Brazilian firm, with BHP Billiton Ltd. and Rio Tinto Group of Australia, controls over 66 percent of global iron ore supply. The more dominant those three companies grow, the less bargaining power steelmakers have to press for lower prices.
It was once advantageous for steel mills to buy iron ore from mines, but since the price of the metal began to surge over the last decade, steelmakers can only be truly competitive by owning their own mining operations. The Luxembourg-based ArcelorMittal, the world’s biggest steelmaker, procured 70 percent of the iron ore it used last year on its own.
“Owning iron ore mines guarantees the stable procurement of iron ore,” said Huh Jin-seok, an analyst at the Posco Research Institute. “And when the price of iron ore rises, the value of the mines appreciates, which can in turn offset the rising price of iron ore.”
Moon Jeong-up, an analyst at Daishin Securities Co., called not having enough iron mines “a weakness of Posco,” adding, “It would be best if Posco could procure 100 percent of the iron ore it consumes. Then, the iron ore supply will be cheaper and more stable.”
U.S. Steel is 75 percent self-sufficient, while Russian and Indian companies are at almost 100 percent, Moon said.
“Steel companies buying iron ore mines could help stabilize iron ore prices by dissolving the hegemony of major iron ore companies,” said Jeon Seung-hun, an analyst at Daewoo Securities Co.
Jeon said Posco procures a relatively small portion of the iron ore it uses on its own compared to other steelmakers.
Posco also plans to reduce its overall costs by 1 trillion won ($901.7 million) this year to deal with rising expenditures on raw materials. Other local steelmakers are also trying to reduce costs, but are experiencing difficulty.
“There is a limit to how much we can absorb of the cost increase by cutting expenses,” said Park Cheon-tak, a spokesman at Hyundai Steel Co.
Park said Hyundai does not have an immediate plan to buy iron ore mines overseas, but it may as well acquire a mine in the long term.
Along with prices of iron ore, the price of steel scrap has also jumped 46 percent to $450 per ton from $350 a year ago, spreading the cost burden to steelmakers using scrap to manufacture their products.
In early April, Hyundai Steel raised the prices of its steel products, and other smaller rivals with electric furnaces including Dongbu Steel Co., Dongkuk Steel Mill Co., Hyundai Hysco and SeAH Steel Corp. followed suit.
Last Monday, Posco raised the prices of its steel products for the first time in almost two years. This will include a 25-percent increase of 170,000 won per ton for hot-rolled coil steel and 23 percent, or 180,000 won per ton, for cold-rolled coil steel.
By Limb jae-un [jbiz91@joongang.co.kr]
Sourced from www.joongangdaily.joins.com
A recent surge in the price of iron ore has put pressure on local steelmakers, struggling with the increased costs.
National leader Posco recently raised prices of its products by around 20 percent, but in the longer term the company plans to increase its efforts to acquire its own sources of raw materials.
The world’s fourth-largest steel company by production recently announced it would invest $5 billion in overseas mines this year, joining rival steelmakers in hunting for the resource.
“We intend to procure 50 percent of the iron ore we use on our own by 2013, from the current 20 percent,” said Kim Dong-wan, a spokesman at Posco.
On April 15 the manufacturer said it would place a preliminary bid for a major stake in Zaporizhstal of Ukraine, a steelmaker that also owns iron ore mines with an annual production capacity of 4 million tons. Posco now partly owns over 20 mines overseas, including four iron ore mines.
“This is the best way for Posco to boost its self-sufficiency in iron ore in order to deal with the rising price of the material,” said Lee Chang-mok, an analyst at Woori Investment and Securities Co.
Posco recently signed a deal with Vale SA of Brazil agreeing to a higher purchase price for iron ore - $100 to $105 per ton - during the second quarter of the year, an increase of nearly 90 percent from a year earlier. The measure was a stopgap designed to keep the two companies trading while further negotiations took place.
“Posco has no choice. It has no bargaining power,” said Kim Min-su, an analyst at Shinhan Securities Co. “Over 66 percent of the iron ore supply is controlled by the big three iron mines.”
Vale, the world’s biggest iron ore producer, last month ended its 40-year practice of selling the commodity through yearly contracts and decided to renegotiate on a quarterly basis, after pushing a 90-percent price increase on Japanese steelmakers for quarterly contracts beginning April 1.
The Brazilian firm, with BHP Billiton Ltd. and Rio Tinto Group of Australia, controls over 66 percent of global iron ore supply. The more dominant those three companies grow, the less bargaining power steelmakers have to press for lower prices.
It was once advantageous for steel mills to buy iron ore from mines, but since the price of the metal began to surge over the last decade, steelmakers can only be truly competitive by owning their own mining operations. The Luxembourg-based ArcelorMittal, the world’s biggest steelmaker, procured 70 percent of the iron ore it used last year on its own.
“Owning iron ore mines guarantees the stable procurement of iron ore,” said Huh Jin-seok, an analyst at the Posco Research Institute. “And when the price of iron ore rises, the value of the mines appreciates, which can in turn offset the rising price of iron ore.”
Moon Jeong-up, an analyst at Daishin Securities Co., called not having enough iron mines “a weakness of Posco,” adding, “It would be best if Posco could procure 100 percent of the iron ore it consumes. Then, the iron ore supply will be cheaper and more stable.”
U.S. Steel is 75 percent self-sufficient, while Russian and Indian companies are at almost 100 percent, Moon said.
“Steel companies buying iron ore mines could help stabilize iron ore prices by dissolving the hegemony of major iron ore companies,” said Jeon Seung-hun, an analyst at Daewoo Securities Co.
Jeon said Posco procures a relatively small portion of the iron ore it uses on its own compared to other steelmakers.
Posco also plans to reduce its overall costs by 1 trillion won ($901.7 million) this year to deal with rising expenditures on raw materials. Other local steelmakers are also trying to reduce costs, but are experiencing difficulty.
“There is a limit to how much we can absorb of the cost increase by cutting expenses,” said Park Cheon-tak, a spokesman at Hyundai Steel Co.
Park said Hyundai does not have an immediate plan to buy iron ore mines overseas, but it may as well acquire a mine in the long term.
Along with prices of iron ore, the price of steel scrap has also jumped 46 percent to $450 per ton from $350 a year ago, spreading the cost burden to steelmakers using scrap to manufacture their products.
In early April, Hyundai Steel raised the prices of its steel products, and other smaller rivals with electric furnaces including Dongbu Steel Co., Dongkuk Steel Mill Co., Hyundai Hysco and SeAH Steel Corp. followed suit.
Last Monday, Posco raised the prices of its steel products for the first time in almost two years. This will include a 25-percent increase of 170,000 won per ton for hot-rolled coil steel and 23 percent, or 180,000 won per ton, for cold-rolled coil steel.
By Limb jae-un [jbiz91@joongang.co.kr]
Sourced from www.joongangdaily.joins.com
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