Tex reported that South Korea’s electric steelmaker Dongkuk Steel Mill Company is thought to have requested a more price reduction in its negotiated slab imports from Brazil’s integrated steelmaker Arcel or Mittal Tubarao for shipments in the October to December quarter.
 
 Behind the request lies a possibility that Dongkuk Steel will fall into the red in its domestic sales of heavy plates due to a depreciating won against the US dollar, market observers believe.
 
 Dongkuk Steel usually imports slabs from Brazil and Japan on dollar denominated terms for the company’s heavy plate production while selling heavy plates on won denominated terms to domestic customers such as shipbuilding companies. Brazilian slab exports to South Korea are under contract at USD 850 per tonnes FOB for October to December shipments, down USD 200 from a quarter ago, according to market sources. The contract price is estimated at a level beyond USD 900 per tonnes C&F after the ocean freight rate and other expenses.
 
 Dongkuk Steel’s domestic sales prices of heavy plates are W1,410,000 per tonnes for ship plates and W1,440,000 per tonnes for commodity grade heavy plates after a price increase of W150,000 per tonnes from September 29 2008 order intakes. At present, South Korea faces a rapid depreciation of the won to the US dollar, a situation where there are even whispers that an exchange rate of USD 1.00 to W1 500 could emerge this week. Dongkuk Steel’s sales price of ship plates translates into USD 1,044 per tonnes at an exchange rate of USD 1.00 to W1 350. The price spread is a mere USD 100 per tonnes or so between the company’s ship plates and imported slabs, given a delivered slab price of US USD 950 per tonnes. There is a possibility that the company will end up selling heavy plates below cost if an advanced depreciation of the won occurs against the US dollar.
 
 As a result, it is understood that Dongkuk Steel has requested a further price reduction in its negotiated imports of Brazilian slabs for October to December shipments.

Prices of stainless steel, used in products ranging from kitchenware to machinery and aircraft, have come under pressure in the second half, falling around 20 percent from April highs, as prices of nickel MNI3, a key ingredient in rustproof steel products, have plunged nearly 70 percent from their March peak.

POSCO, the world’s No.4 steelmaker by output, cut stainless steel production by 17 percent to 334,000 tonnes in the third quarter from the previous quarter and would reduce production by 30 percent or 150,000 tonnes in the current quarter, a spokeswoman said, confirming local media reports.

The firm said earlier this month that weak demand for stainless steel products would continue into the fourth quarter due to low seasonal demand and weakening consumption from China and Europe, but was likely to recover early next year.

In August, POSCO cut stainless steel prices by up to 10 percent, reversing two earlier price hikes this year, as prices of nickel continued to slide.

Posco, Asia’s biggest steelmaker by market value, expects third-quarter earnings to beat “market expectations” and full-year operating profit to exceed its forecast on increasing sales and cost savings.

“Third-quarter earnings will be better than expected,” Chief Financial Officer Lee Dong Hee said in an interview in Seoul with overseas news wires, without giving profit forecasts. “Sales are good and we’ll also be able to meet our cost-saving target this year.”

Price increases and spending on technology to use cheaper coal will support earnings at Pohang, South Korea-based Posco as steelmakers globally struggle with a surge in raw materials costs, Lee said. Asian mills are paying three times more for coking coal and almost two times more for iron ore this year.

“They have the technology to cut down on expensive materials and instead increase cheap ones, which will help them cut costs,” said Chung Ji Yun, an analyst with HI Investment & Securities Co. in Seoul. “They have a very good mixture of raw materials.”

Posco, Asia’s third-biggest steel producer, in July projected 2008 operating profit of 5.7 trillion won ($5.1 billion), up 33 percent from 4.3 trillion won in 2007.

Posco gained 15,000 won, or 3.3 percent, at 469,500 won at 11:39 a.m. in Seoul trading, outperforming a 0.1 percent advance in the benchmark stock index.

The Korean steelmaker has fallen 18 percent this year, while Nippon Steel Corp., the world’s second-largest and Japan’s biggest, lost 34 percent and Baoshan Iron & Steel Co., China’s No. 1 producer, plunged 62 percent.

Production Cuts

ArcelorMittal, the world’s biggest steelmaker, said last week it could cut output by 15 percent in Europe and the U.S. to support prices as global growth slows.

“Many other steel companies are saying it will be very difficult to go through the third quarter,” Lee said. “I can say we are doing well as we are continuously switching into cheaper coal, thanks to our technology.”

Chinese steelmakers have cut production because of weak demand and higher raw material costs, Nanjing Iron & Steel United Co. said last month. Prices of hot-rolled coil, a benchmark product, are down 15 percent from a June record in China.

“Steel prices appear to be weakening a bit at the moment, but we are not much concerned and remain positive,”, Lee said. “Current prices of our products are already lower than market prices, so we are the least-affected in that regard.”

Posco will report 1.99 trillion won in net income in the third quarter ended Sept. 30, according to 16 analysts’ mean estimate compiled by Bloomberg.

Price Increases

The steelmaker raised prices for benchmark hot-rolled coil by about 63 percent this year through three rounds of increases to cover higher costs. It may adjust prices by product, Lee said, declining to say which products will be affected and when.

Posco cut stainless-steel prices as much as 10 percent in August, the first reduction this year on weakening demand. It extended a 20 percent output cut for stainless steel products in September from July and August on weak demand.

The company doesn’t plan to cut output of other products, helped by strong demand, Lee said.

“Carbon steel demand is good now, so we don’t need to even consider cutting output,” Lee said, adding that the stainless steel business will post a “reasonable” profit this year.

Baosteel Group Corp., China’s largest steelmaker, said Sept. 18 orders were falling, signaling a slowdown in the world’s fastest-growing major economy.

POSCO, the world’s No.4 steelmaker, expects steel prices to stay firm, amid rising concerns that falling prices in China on weak domestic consumption may spread across the world, a senior official said.

“Export prices are strong and domestic steel prices are also holding up well,” Hwang Eun-yeon, POSCO’s senior vice president of marketing strategy, told Reuters late on Thursday.

“Prices may come under pressure for some time but we expect China would take some steps to shore up domestic demand, (if it worsens further) and help boost overall steel prices.”

China’s steel exports jumped to record highs in the past two months as slowing economic growth dampened domestic prices, forcing steel mills to go overseas in hopes of better pricing.

Global steel prices have also weakened this summer, led by long steel products used mainly in the construction industry, on the credit crisis and troubled housing markets.

In the latest move to shore up steel prices by global steel firms struggling with soaring raw material costs, ArcelorMittal , the world’s largest steelmaker, said on Thursday it was preparing to reduce production by up to 15 percent.

The steel giant said it had already cut production in Ukraine and Kazakhstan by 15-20 percent and further output cuts would be focused on long steel products and on Europe and the United States.

Signs of a softening price outlook have increased in recent months, with China’s Baosteel cutting prices for cold-rolled steel products for the fourth quarter due to weak demand from the auto and home appliances sectors

POSCO mainly produces flat steel products such as heavy plates, for which prices have soared on strong demand from the shipuilding industry.

Shares in POSCO, South Korea’s second-largest company by market value, rose 3.5 percent to 432,500 won by 0010 GMT, versus a 3.2 percent gain in the broader market .