Ship-Plate Prices Will Rise This Year, Rongsheng Says
Thursday, 07 August 2008
Prices of ship-plate steel in China, the world's biggest maker of bulk carriers, will increase to a record this year on demand for fleets to carry iron ore and oil, according to two of the nation's shipyards. Prices may rise by a ``few hundred yuan'' a metric ton after doubling to more than 8,000 yuan ($1,168) in the past four years, Jiangsu Rongsheng Heavy Industry Group Co. Chairman Chen Qiang said in a phone interview. Rongsheng, partly owned by Goldman Sachs Group Inc., won a $1.6 billion order this week.
Steel accounts for at least 30 percent of costs at Rugao, Jiangsu province-based Rongsheng, which buys the plates from Baoshan Iron & Steel Co., Jiangsu Shagang Group Co., and Shougang Corp. In South Korea, the world's largest shipbuilding nation, the price of steel used for ship hulls jumped 74 percent this year.
``For steelmakers, ship plates are one of the most profitable sectors,'' said Luo Wei, a Shanghai-based analyst with China International Capital Corp. Plates account for a quarter of the profit at Baoshan, China's largest mill, he said.
Cosco Corp. Singapore Ltd., the shipbuilding and repair unit of China's biggest marine line, also expects higher prices.
``Ship-plate prices may rise a little because of higher raw-material and labor costs in China,'' Cosco Corp. President Ji Haisheng said yesterday in a phone interview.
Steelmakers Profit
Cosco buys steel from Baosteel Group Corp., the parent of Baoshan Iron, and Anshan Iron & Steel Group. The Singapore-based company is paying about 6,200 yuan a ton for steel, an increase of 28 percent this year, according to JPMorgan Chase & Co.
Higher ship-plates prices may help Baoshan Steel and competitors sustain profit growth as prices for other products may decline. China's supply of steel used in cars and appliances may rise in the second half, depressing prices, the China Iron and Steel Association said July 30.
Rongsheng Heavy Industry needs 2.4 million metric tons of ship plates by 2010, said Chen, who is also president. The company has orders for more than 100 ships, including iron ore carriers, tankers, drilling and container ships, he said.
The company will build 12 vessels for Cia. Vale do Rio Doce, the world's largest supplier of iron ore, for delivery from early 2011.
``There is still tightness in the market as China's ship production will rise this and next year,'' said Rongsheng's Chen late yesterday. The shipbuilder has been able to pass on higher steel costs for new contracts, he said.
Chinese Demand
Shipbuilders in China this year will probably only buy domestic steel, trimming imports, because of increasing capacity, Chen said.
``Chinese steelmakers are able to supply all types of the steel we need from this year as their production catches up,'' he said. ``As we see more steel capacity in the pipeline, prices may fall from next year.''
South Korea exported 147,000 tons of steel plates to China in the first six months of the year, according to the Korea Iron & Steel Association.
Global ship production may peak next year and start to fall from 2010 as buyers struggle to get credit because of the subprime crisis, Chen said.
Daewoo Shipbuilding & Marine Engineering Co. and Hyundai Mipo Dockyard Co. last week said customers canceled orders.
`Unexpected Rise'
Tokyo-based Mitsui Engineering & Shipbuilding Co., Japan's second-largest shipbuilder, said today it may miss its full-year profit forecast because the cost of steel is 30 percent higher than expected.
``A big rise in steel prices is the biggest problem in securing profit,'' President Yasuhiko Katoh, 61, said in an interview in Tokyo.
Dongkuk Steel Mill Co., South Korea's second-largest provider of the material, is charging a record 1.26 million won ($1,239) a metric ton.
``Shipbuilders are able to pass some of the rising costs on to their customers, but not all,'' said Jack Xu, a Shanghai- based analyst at Sinopac Securities Co. in Shanghai.
Source: Bloomberg
