Report: With Full Orderbooks, Korean Shipbuilders Plan to Raise Prices
Facing losses due to rising steel prices, all of South Korea's "Big Three" shipbuilders are expected to raise prices in a drive to improve margins. Demand is strong, orderbooks are filling fast, and it appears to be an opportune time to prioritize the bottom line.
Steel prices have taken a large cut out of the yards' profitability this year. The benchmark Chinese market price for steel plate has soared from about $450 per tonne to about $750 per tonne over the span of the past year - an increase of about 65 percent.
With contract prices for their vessels already set, and material costs going up, Korea's shipbuilders have had to make loss provisions for future deliveries. That has showed up in recent earnings reports: Samsung Heavy Industries lost $380 million last quarter, much more than analysts expected; Hyundai Heavy Industries posted an even steeper loss of $780 million; and DSME, which has not yet reported its results, is widely expected to post a loss as well.
These losses come despite exceptionally strong sales activity. The Big Three have almost entirely fulfilled their combined sales targets for the year, and Hyundai Heavy Industries has already surpassed its annual goal. The yards' order backlogs have been replenished, and they can now look to shore up their profit margins as well, according to Korea Economic Daily.
Since the Big Three shipbuilders order a tremendous volume of steel, they negotiate contracts for a six-month period. Korean outlet EconoTimes reports that steelmakers are looking to lock in a 64-percent price hike for the second half of the year - a target that HHI, SHI and DSME will try to negotiate down.