News Room - Steel Industry

Posted on 03 Apr 2008

POSCO may raise steel prices, interested in Daewoo

South Korea's POSCO said on Thursday it was weighing up a rise in steel prices and may bid for Daewoo Shipbuilding and Marine, which analysts say could fetch nearly 5 trillion won. 

"We are considering raising steel prices but details in terms of the timing and the level of the price hike haven't been decided," a POSCO spokesman said after local media reported the firm was looking at a price rise.

POSCO, which has lagged its local rivals such as Hyundai Steel 004020.KS in raising prices, has increasingly come under pressure due to rising costs of raw materials such as coking coal and iron ore. Both are key materials used to produce steel.

POSCO agreed to a 65 percent hike in iron ore prices with Brazilian mining firm Vale in February and has yet to deal with other mining majors such as BHP Billiton and Rio Tinto.

The term price of iron ore has risen fivefold since 2001, while coal prices have surged this year because of strong demand from China and supply disruptions in Australia caused by port conditions and poor weather.

By 0227 GMT, shares in POSCO, the second-biggest company in South Korea after technology bellwether Samsung Electronics, were up 4.7 percent to a 4-week high of 501,000 won, versus a 0.8 percent gain in the broader market .

POSCO, the world's fourth-largest steel maker by output, has been widely tipped by analysts to bid for Daewoo Shipbuilding to lock in a big buyer of its products.

South Korean steelmakers, including POSCO, have said that they were interested in buying the shipbuilder but the high premium for the company could be a problem.

"Everyone has been waiting for POSCO to clarify when and by how much the price of its steel products will rise," said Kim Hyun-tae, an analyst at Goodmorning Shinhan Securities.

If POSCO raises its price, others in the sector will quickly follow suit, he added. Dongbu Steel (016380.KS: Quote, Profile, Research) rose 7.27 percent to 11,800 won and Dongkuk Steel (001230.KS: Quote, Profile, Research) advanced 3.49 percent to 38,500 won. Hyundai Steel was steady at 69,700 won.

"Acquisition of Daewoo will be positive to POSCO in the long term, in that the company can diversify its portfolio of businesses using a huge pile of cash it's got. Also it will grant almost an exclusive rights of sale to Daewoo," Kim added.