Korean steelmakers to continue enjoying highest operating margins in 2013

South Korea's steelmakers will continue to enjoy the highest operating margins in the industry next year, according to Samsung Securities.

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China’s steel producers on the other hand will continue to struggle with relatively low margins as a result of over-capacity, the brokerage said.

The average operating margin among Korea’s major players will increase by 0.6% in 2013 as raw material input costs fall and demand recovers.

Posco, for example, will see its margins rise from 7% to 7.5% as it increasingly targets the lucrative auto sheet market that is less exposed to the vagrancies of the spot market.

Samsung Securities noted that the company is set to benefit from a recovery in domestic HRC demand once Hyundai Hysco’s new facility comes online next year and growing auto-sheet shipments to Japanese carmakers.

The Hyundai Group’s two steelmaking units, Hyundai Steel and Hyundai Hysco, will also benefit from auto steel shipments to the Hyundai Motor Group.

In particular, Hyundai Hysco’s operating margins are likely to be significantly improved by its capacity expansion next year.

Hyundai Hysco’s auto-sheet production capacity will increase by 4.5 million tonnes from 2.8 million in 2010 on the April 2013 opening of a second CRC factory in Dangjin with 1.5 million tonnes of capacity.

As a result, its operating margin will increase to 6% from 5.5% this year. Hyundai Steel’s margins, meanwhile, will rise to 9.5% from 7.4%.

Operating margins at specialty steel producer SeAH Besteel will remain steady at an industry high of 10.1%, while SeAH Steel Corp’s margin will remain at 6.6%, Samsung Securities says.

Poongsan’s margins will edge up by 0.1% to 5.2%, as will Husteel’s, to 7%.

The average operating margin for Korea’s main players will be 8% versus 7.4% this year.

By contrast, the average operating margin among the rest of the world’s major producers will increase to just 4.8% from 3.4% this year, Samsung Securities said.

In particular, China’s main steel producers will see their margins rise to a paltry 3.8% – although that is a significant improvement on this year’s projected figure of just 2.5%.

China’s steel players have been plagued by overcapacity, which has led to a crash in selling prices.

Only Baosteel will produce any kind of respectable operating margin gain, Samsung Securities believes, rising to 6.2% in 2013 from 5.2% in 2012.

By contrast, Maanshan Iron & Steel’s operating margins this year will be only 1.5% this year, before rising to 2.9% next year.

The picture for Wuhan Iron & Steel and Angang Steel is much the same. Wuhan will see its margin rise from 1.6% to 2.8% while Angang’s will go from 1.8% to 3.5%.

Japan’s steelmakers will see their margins increase to 4.6% from 4% this year, with margins at Nippon Steel rising to 4.9% from 4.3%, and those at JFE Steel increasing to 4.8% from 4.3%.

However, Kobe Steel, which will become Japan’s third-biggest steelmaker next year following the merger of Nippon Steel and Sumitomo Metal Industries next month, will continue to suffer the poorest margin: 3.5% this year and 4.2% next year.

While Japan’s steelmakers will benefit from an overall improvement in demand and the positive effects of cost-cutting measures, they will face increasing competition from Posco in particular as the Korean company looks to ramp up its exports to Japanese automakers.

The biggest improvement in operating margins, according to Samsung Securities, will be seen at the USA’s two main producers, US Steel and Nucor, as the US economy continues to steadily recover. Margins at the former will rise to 4.2% from 2.7%, while those at the latter will jump to 8.5% from 5.6%.

Margins at the world’s biggest steel producer, ArcelorMittal, meanwhile, will increase to 5.1% next year from 3.9% this year.