South Korean steelmakers have declining revenues amid rising raw material prices

South Korea's steel industry is likely to see weak corporate earnings in the first quarter of this year due to rising commodity prices, falling steel prices and growing trade protectionism.

According to corporate tracker FnGuide, market consensus shows that the nation's largest steel company, Posco, will see operating income fall 22% to reach 1.1 trillion won ($ 962 million) in the first quarter of this year.

Over the same period, Hyundai-Steel and SeAH Besteel are estimated to reduce operating income by 20% and 34% to 234 billion won and 22.9 billion won, respectively.

The weak outlook for the local steel industry is largely a result of soaring prices for iron ore, a key raw material for steel production, industry observers say.

In January-March, the average selling price of iron ore rose 13.8 percent to $ 80 from $ 70 in the fourth quarter of last year due to supply problems in Brazil and Australia, the two largest iron ore producers.

The collapse of a mine dam in Brazil killed at least 160 people last month, prompting the country to announce a plan to cut iron ore production by 40 million tons per year. Australia this week slashed its monthly iron ore exports by 13 percent following tropical cyclone Veronica.

Despite the surge in raw material prices, the price of carbon steel fell 15,000 won per ton in January-March due to an oversupply of steel produced in China.

Byun Yong-man, a researcher at NH Investment & Securities, said Hyundai-Steel's profitability would deteriorate significantly if the average selling price of steel did not rise in the second quarter.

“The impact of rising iron ore prices from a dam collapse in Brazil will pick up steam in the second quarter,” he said.

Growing protectionism is also exacerbating the problems of the local metallurgy.

Steel exports fell 1.8 percent in February from the same month last year, according to the local association of steel producers. It also fell 5.8 percent from the previous month.

Last month, the European Union imposed a protective measure on imported steel, including products made in Korea. In the same month, China decided to impose temporary anti-dumping measures on certain types of stainless steel imports from the EU, Japan, Korea and Indonesia.

Korean steelmakers are trying to overcome the setback by urging shipbuilders to raise the price of heavy plate, a key material for shipbuilding.

Korean steelmakers and shipbuilders, including Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries, are currently negotiating the price of thick plates.

Per