Hyundai Steel has difficulty raising the prices of its automotive steel sheets through negotiations with automakers. It needs to raise the prices of its products to improve the bottom line, but the main buyers are its two sister companies, Hyundai Motor and Kia Motors.
It is still unclear whether the negotiations will be concluded by the end of the year. An industry insider said, “Earlier, the negotiations were expected to be settled last November, but they seem to take longer as the two sides failed to narrow their differences.”
The negotiations remain stalled as Hyundai and Kia are opposed to price increases due to their worsened performance. As of the third quarter, the operating margins of Hyundai and Kia remain at 1.4 percent and 1.9 percent, respectively. Sluggish sales of the sedan models in the United States and the burden of incentives hinder a recovery of profitability. Sales have been also slack in the Chinese market.
Industry insiders forecast that it would not be easy for the two automakers to recover profitability in a short time in light of the negative conditions such as a drop in demand growth for automobiles and the U.S.-China trade disputes.
Hyundai Steel’s automotive steel sheet business has grown rapidly on the back of demand from global automaker Hyundai Motor. The steelmaker’s automotive steel plates account for about 25 percent of its total steel production. About 90 percent of the proportion goes to Hyundai and Kia. However, such a vertical integration has become a double-bladed sword as the economic conditions get worse. When its parent Hyundai Motor pushes for cost cutting, it hurts Hyundai Steel’s profitability. In fact, the steelmaker has not raised its steel sheet prices for the last two years.
Hyundai Steel urgently needs to raise the prices of its products as the price of iron ore, one of the raw materials in steelmaking, has soared. Industry watchers say the company needs to increase steel sheet prices by at least 50,000 won a ton.
Hyundai Steel posted a net loss of 6.7 billion won in the third quarter of the year, and saw an operating profit of 34.1 billion won, down 66 percent from the same period of last year (102 billion won). A steel industry official said, “Steelmakers have shared the difficulty and pain of the upstream industry. Yet now is the time to normalize pricing.”