maverick
24-02-2008, 10:14 PM
Indian, Chinese and Japanese steel makers are bracing for a tough year amid steadily rising raw materials prices, particularly iron ore. After negotiating a new round of price hikes with suppliers, they will attempt to pass on the added costs to customers.
Many small and mid-sized Chinese steel makers, including Jiangsu Shagang Group, Laiwu Steel and Baotou Steel, have already raised prices on a range of various products in anticipation of a similar move by China’s largest steel maker, Baoshan Iron & Steel, or Baosteel, for short.
A price hike by Baosteel looks inevitable, as it was reported on Friday to have accepted a 65% yearly increase in the benchmark price of iron ore from Brazil’s Vale (nyse: RIO - news - people ), the world’s biggest iron ore producer, in negotiations taking place on the Chinese island of Hainan.
The terms would be similar to those Vale reached earlier this week with seven steel makers in Japan, South Korea and Europe, including POSCO (nyse: PKX - news - people ), Nippon Steel (other-otc: NISTY - news - people ), JFE Holdings (other-otc: JFEEF - news - people ) and ThyssenKrupp (other-otc: TYEKF - news - people ).
The acceptance of a 65% hike in the benchmark iron ore price from Vale for this year has prompted Nippon Steel and JFE Holdings, Japan’s two largest steel makers, to raise domestic wholesale sheet prices by a record 31%, passing high material costs on to clients, according to Bloomberg News.
The 65% rise demanded by Vale exceeded an earlier estimate of a 30%-50% increase by Fitch Ratings.
The ratings agency said major Japanese steelmakers and POSCO of South Korea are likely to face pressure on their profit margins, but it expected that they will still be able to pass on a large portion of the cost increase to their customers because demand, especially from automobile manufacturers, is still strong.
The impact on steel makers in China could vary, though. Baosteel, which focuses on higher-value steel products, and Angang Steel (other-otc: ANGGF - news - people ), which has superior access to raw materials, are expected to withstand the cost increase better, Fitch said in a research note.
But steelmakers at the commodity end of the industry, suffering from excess production, may face closure in an industry shakeout that could take place earlier than anticipated.
Many small and mid-sized Chinese steel makers, including Jiangsu Shagang Group, Laiwu Steel and Baotou Steel, have already raised prices on a range of various products in anticipation of a similar move by China’s largest steel maker, Baoshan Iron & Steel, or Baosteel, for short.
A price hike by Baosteel looks inevitable, as it was reported on Friday to have accepted a 65% yearly increase in the benchmark price of iron ore from Brazil’s Vale (nyse: RIO - news - people ), the world’s biggest iron ore producer, in negotiations taking place on the Chinese island of Hainan.
The terms would be similar to those Vale reached earlier this week with seven steel makers in Japan, South Korea and Europe, including POSCO (nyse: PKX - news - people ), Nippon Steel (other-otc: NISTY - news - people ), JFE Holdings (other-otc: JFEEF - news - people ) and ThyssenKrupp (other-otc: TYEKF - news - people ).
The acceptance of a 65% hike in the benchmark iron ore price from Vale for this year has prompted Nippon Steel and JFE Holdings, Japan’s two largest steel makers, to raise domestic wholesale sheet prices by a record 31%, passing high material costs on to clients, according to Bloomberg News.
The 65% rise demanded by Vale exceeded an earlier estimate of a 30%-50% increase by Fitch Ratings.
The ratings agency said major Japanese steelmakers and POSCO of South Korea are likely to face pressure on their profit margins, but it expected that they will still be able to pass on a large portion of the cost increase to their customers because demand, especially from automobile manufacturers, is still strong.
The impact on steel makers in China could vary, though. Baosteel, which focuses on higher-value steel products, and Angang Steel (other-otc: ANGGF - news - people ), which has superior access to raw materials, are expected to withstand the cost increase better, Fitch said in a research note.
But steelmakers at the commodity end of the industry, suffering from excess production, may face closure in an industry shakeout that could take place earlier than anticipated.