High steel prices hit shipyards

Hyundai Heavy Industries and STX Shipbuilding reported third-quarter losses as surging steel prices increased production costs. Hyundai?s net loss was $30 million compared to a profit of $3.5 million a year earlier, the company said. STX said its third-quarter loss was $1.6 million, compared to a profit of $17.2 million.

South Korea’s shipbuilders, which are usually paid as they complete orders, are building vessels at record decade-low prices and are now completing 2001 and 2002 orders, when the price of a tanker that could carry 2 million barrels of crude oil fell to a 10-year low of $62.5 million. Prices of new ships slumped in 2001 and 2002 to their lowest since 1994 after the 9/11 event raised fears about maritime security.

The cost of steel plates has risen as much as 70% this year. “It’s only going to get worse for shipbuilders as they fully reflect the high steel plate prices into their earnings,” said Song Yung-sun, an analyst at Korea Investment & Securities Co. “There’s really nothing much to expect on earnings from shipbuilders until the first half of next year.” A 30% increase in the price of steel lowers operating profit margins by an average 4.5 percentage points, he said.

Shipbuilders’ earnings have also been hurt by foreign exchange losses after the won strengthened against the U.S. dollar, analysts said. The won has risen 7.9% against the dollar this year, reducing the value of U.S. dollar-denominated orders when the funds are repatriated.