Raw Materials Pries
Despite initial concerns, the steel industry showed good results in the first quarter. Taking a closer look, however, reveals that the results were largely due to an “unstable surplus” from the drop in raw materials prices, including iron ore and coal, rather than high sales.
As the trend is expected to continue, the steel industry will most likely face more troubles in the future.
According to the steel and the securities industries on April 13, the operating profits of POSCO in the first quarter are expected to surpass 836 billion won (US$758.28 million). The figure an increase of 14 percent from 731.2 billion won (US$663.22 million) a year earlier.
The improvement of the performance of steel companies is mainly due to the lower prices of raw materials. Due to the global economic recession, demand has decreased from the slump in the shipbuilding and construction industries, which are front industries. However, its profitability has improved as the price of iron ore and coal has fallen.
According to the steel industry, the price of iron ore per ton plunged to US$62 (68,355 won) in the first quarter this year from US$120 (132,300 won) a year before. The price of coal per ton also decreased to US$111 (122,378 won) this year from US$142 (156,555 won) in the first quarter of last year. Also, the price of steel scrap per ton, the main material of electric furnaces, has dropped to 220,000 won (US$199.55) from 260,000 won (US$235.83) in the fourth quarter of last year.
The price of raw materials keeps falling in the second quarter. The iron ore price per ton decreased to US$47 (51,818 won) in April, while steel scrap price is currently standing at 210,000 won (US$190.48).
An official from the industry said, “Since low raw material prices led to the surplus, it is not that welcome news for steel firms. The only meaningful surplus is achieved by the upswing in exports based on the global economic recovery.”