Foundry business booms as prices rise and competition struggles
The foundry business is booming as prices rise and Europe faces an energy crisis.
Rising metal prices are driving up profit margins, although rising costs could hurt the industry in the long term if the current trend continues.
Copper and zinc prices have been rising steadily for more than two years. As the pandemic lockdown weighed on the global mining industry, infrastructure plans in the United States and China boosted demand for industrial metals.
Russia’s invasion of Ukraine has pushed up already rising prices. Restrictions on the use of Russian liquefied natural gas have hit European smelters hard, resulting in a shortage of non-ferrous metal supplies worldwide.
Copper was trading at $10,292 a tonne on the London Metal Exchange on Thursday, up 14% year on year, according to data compiled by the Korea Mine Rehabilitation and Mineral Resources Corporation. The price of zinc was $4,250 a ton that day, a 51% year-on-year increase.
“By-products of the smelting process, such as gold, silver, platinum and palladium, have also become more expensive,” an industry insider said.
The trend has helped non-ferrous metal suppliers.
In Korea, LS-Nikko Copper produces electrolytic copper and precious metals. Korea Zinc metal processing company supplies non-ferrous metals, such as zinc and lead, and Poongsan Corporation manufactures copper products. LS Cable & System and Taihan Electric Wire are two major cable suppliers.
Local suppliers came out on top despite cost increases as their product prices were adjusted based on cost fluctuations. Profit margins improved even as companies stocked up on raw materials before the price spike.
Yuanta Securities expects Poongsan Corporation’s quarterly revenue to reach 876 billion won ($714.5 million) in the first quarter of this year, with operating profit of 42 billion won. This is an increase of 20.8% and 33%, respectively, compared to the same period last year.
Poongsan Corporation posted record operating profit last year, helped by rising commodity prices.
The company reported annual revenue of 2.5 trillion won in 2021, up 32% year on year. Operating profits also jumped 144% to 234 billion won.
Shinhan Investment expects Korea Zinc’s first-quarter revenue to rise 12.8 percent year-on-year to 1.9 trillion won, with operating profit up 3.3 percent to 240 billion won.
Yarn makers are also doing extremely well.
Cable manufacturers often use a price escalation clause in their contracts, which means that fluctuations in the costs of copper, the key material for cables, are taken into account in the contract prices.
LS Cable & System recorded annual revenue of 4.1 trillion won last year, up 26%. Taihan Electric Wire’s annual revenue soared 29 percent year on year to 1.9 trillion won.
Metal inventories rallied on expectation of strong quarterly sales.
On Friday, Korea Zinc was trading at 628,000 won, up 52% from 412,000 won on April 9, 2021.
The current trend could harm the industry in the long run. Poongsan Corporation, for example, has benefited from rising costs due to raw material inventories, but will suffer the consequences when inventories decline.
BY KIM GYEONG-MI [[email protected]]