The shadow of iron ore price increases: Parts companies are hit by a stick

This year, the ripple effect triggered by the sharp rise in iron ore prices has begun to impact "Made in China." When iron ore prices first surged, the stock values of major steel producers like Baosteel and Shougang dropped sharply, dragging the entire Shanghai Stock Index below 1300 points. Chinese manufacturers, heavily reliant on iron ore as a key raw material, found themselves in a tough spot. The industries most affected by the rising cost of iron ore and steel include shipbuilding, machinery, automotive, and home appliances. Each sector is facing unique challenges as steel prices continue to climb. **Shipbuilding Industry:** At the start of the year, the shipbuilding sector faced its biggest challenge: soaring raw material costs. Many shipbuilding orders were placed two years ago, when international steel plate prices averaged between $280 and $300 per ton. At that time, those contracts seemed profitable. However, by early this year, steel prices had skyrocketed to around $765 per ton, turning what was once a promising situation into a crisis for shipbuilders. According to Ma Zhongpu from the Lang Steel Information Research Center, steel accounts for over 70% of their raw material costs, making them extremely vulnerable to price fluctuations. **Machinery Manufacturing:** The machinery industry is also struggling with rising steel prices. Profit margins have dropped significantly compared to previous years. Domestic machinery companies are in urgent need of high-value-added, high-tech steel products, but local steel producers can only supply a small portion, and in some cases, not at all. As a result, manufacturers are forced to import more expensive foreign steel. Ma Zhongpu notes that "products with low technological content will eventually be eliminated." **Automotive Industry:** Although steel accounts for less than 20% of the cost in the automotive sector, car manufacturers believe that the burden of rising steel prices will mainly fall on component suppliers. The domestic component market is already highly competitive, and the increase in steel prices has hit these suppliers hard. **Appliance Industry:** For the home appliance industry, steel costs make up about 20% to 30% of variable costs. If companies cannot pass on the increased costs, a 10% rise in steel prices could reduce net profit margins by 2%. Given that the industry already operates on thin margins, this has been a significant blow. Companies that rely on low-cost expansion and pricing strategies are especially struggling. However, the initial fear that manufacturing companies would face mounting cost pressures did not fully materialize. Instead, the situation reversed due to excess steel production capacity. By the end of the year, domestic steel prices plummeted to record lows, and the manufacturing sector began to recover. Wu Xilu, former president of the Iron and Steel Industry Association, called for a new strategy, suggesting that increasing exports of electromechanical products could help boost steel sales. In this way, China's manufacturing industry experienced "two bad days" in one year — a period of turbulence followed by a rebound. **Related Topics:** Rise! Rise! Rise! Iron Ore Price Tracking

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