Samsung Heavy Leads Drop in Korean Yards on Steel Cost Concern

By Kyunghee Park

July 30 (Bloomberg) -- Samsung Heavy Industries Co., the world's second-largest shipbuilder, led declines in South Korean shipyards in Seoul trading on concern steel-plate prices will erode earnings growth next quarter.

Samsung Heavy fell 5.5 percent, the most in six months, to 39,600 won as of 10:37 a.m. in Seoul. Hyundai Heavy Industries Co., the world's biggest shipbuilder, dropped 4.3 percent to 315,000 won.

South Korean steelmakers have increased prices of steel products by as much as 74 percent this year to records as costs for iron ore and key ingredients almost doubled. Steel plate expenses account for about 15 percent of their annual sales.

``Higher steel plate costs had a bigger impact on earnings in the second quarter than was expected,'' said Lee Jae Won, an analyst at Tong Yang Securities Co. in Seoul. ``The impact will only be bigger for third-quarter earnings when the price hikes are fully reflected.'' He rates the industry ``overweight.''

Hyundai Heavy reported a 12 percent operating profit margin in the second quarter, compared with the 14.7 percent in the previous three-month period. Samsung Heavy's margin dropped to 7.5 percent from 9.3 percent.

Steel plates prices reached a record 1.26 million won a metric ton in South Korea as steelmakers can't meet demand from shipbuilders.

Hyundai Mipo Dockyard Co., a unit of Hyundai Heavy, fell 3.2 percent to 200,000 won. Daewoo Shipbuilding & Marine Engineering Co., the world's third-largest shipbuilder, dropped 3.1 percent to 42,550 won.

To contact the reporter on this story: Kyunghee Park in Hong Kong at kpark3@bloomberg.net