April 27, 2024

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[THE INVESTOR] Hyundai Steel, South Korea’s No. 2 steelmaker, has been pushing to raise the price of its automotive steel plates supplied to Hyundai and Kia Motors, according to industry sources.

Hyundai and Kia Motors are currently negotiating with the local steelmaker to settle on a new price for steel sheets, according to a Hyundai Motor spokesperson.

The steel industry has been calling for a price hike, citing the increased cost of raw materials, while the auto firms remain reluctant due to a continued decline in operating profits in recent years. 

Hyundai Steel, an affiliate of Hyundai Motor Group, is expected to push for a price hike of about 130,000 won ($114) per ton due to the increased cost of raw materials, as the vice president of the company, Kim Young-hwan, suggested during an investor relations session held last month.

The cost of iron ore, a main material used to produce steel, rose 84.7 percent to $81.73 per ton last month from $44.24 in November 2015, according to the state-run Korea Resources Corporation.

The price of steel sheets has remained the same since it dropped 80,000 won per ton in November 2015. 

Hyundai Steel’s latest move comes with an aim to boost its operating profit-to-sales ratio, which has been stuck in the 8 percent range for three consecutive years, said analyst Kwon Soon-woo of SK Securities.

The steelmaker depends on Hyundai and Kia Motors for sales of its automotive steel plates, which accounts for some 30 percent of its total sales, according to Hyundai Steel.

On the other hand, Hyundai and Kia Motors remain reluctant on the hike, as their ratio of operating profits-to-sales has been on a downslide in recent years.

Hyundai Motor’s ratio of operating profit-to-sales dropped to 5.5 percent in 2016 from 10.3 percent in 2011, company data showed. Kia Motors’ slid to 4.7 percent from 8.1 percent in the same period.

When factoring in the increased cost of raw materials, market analysts project the two parties to settle on an increase between 80,000 won and 100,000 won, Kwon said.

Securities firms here, including Kiwoom Securities, mostly viewed the two sides as likely to agree on a hike of 80,000 won. 

“Under the assumption that the two parties agree on an increased price sometime this month, the change will go in effect from March and will be fully reflected in the second-quarter operating profit-to-sales ratio,” Kwon said. 

By Kim Bo-gyung/The Korea Herald (lisakim425@heraldcorp.com)