Electricity tariff hike to hit hard Hyundai Steel – Moody’s

lobal rating agency Moody’s said that South Korea’s second largest steelmaker Hyundai Steel will be hit hardest by the country’s electricity tariff hike as the company depends heavily on electric arc furnace to produce steel products.

Mr Chris Park, a senior credit officer at Moody’s in Hong Kong, said that “Electric arc furnace based steel producers pay about 7% for electricity in their cost of goods. Among our rated Korean corporate, Hyundai Steel will be hardest hit by the higher costs.”

Mr Park said that although the actual effect of the electricity price hike on Hyundai Steel was expected to be smaller thanks to its ability to pass on part of the higher tariff to customers, the new tariff will decrease the company’s operating income by 3% based on its 2011 income statement.

The Ministry of Knowledge Economy accepted last week the request from the Korea Electric Power Corporation to lift the power rates by 4.9% staring August 6th 2012.

The electricity charges for industrial use were raised by 6% as the area needs to improve energy efficiency. The increase followed a 6.1% hike in August 2011 and a 6.5% gain in December 2011.

The tariff hike came as the KEPCO has incurred huge losses when providing power for industrial users. The state run power provider logged a net loss of KRW 513 billion in the first quarter after posting a net loss of KRW 3.2 trillion in 2011.

Mr Park warned that the tariff hike will have a negative effect on the profitability of South Korean manufacturers, especially heavy users such as those in the steel, chemicals and semiconductor industries.

The country’s top steelmaker POSCO, however, was expected to face a reduction in operating income by less than 1% due to its blast furnace centered operations, which consumer less electricity than electric arc furnace.

Source – www.steelguru.com