After enjoying four years of the "China impact," the domestic steel industry confronts massive risks this year with the soft landing of the Chinese economy.
The downfall already began in the second half of last year as the oversupply of Chinese steel products flooded the Korean market, pulling down prices.
"Difficult situations will continue for the next two years. We may face an ordeal we have never experienced before," said Chairman Lee Ku-taek of Korea's No. 1 steelmaker POSCO in a management meeting last month.
With the rapid upsurge of China's production facilities, the country's steel supply exceeded its decelerating demand last year, resulting in an increase of exports. Cheap Chinese products started to threaten Korean steelmakers and prices are expected to drop further this year.
China's net exports of steel or exports minus imports is expected to soar from last year's 3 million metric tons to 13 million metric tons this year, said the World Steel Dynamics, a U.S. steel information service.
The WSD predicts Chinese crude steel production to reach 373 million metric tons, up 9.7 percent from 2005, while nominal consumption dips 7.9 percent to 327 million tons. Chinese slag production is estimated to climb 11.1 percent to 340 million tons.
The Korea Iron & Steel Association forecasts national steel demand to swell 1 percent to 47.4 million tons thanks to brisk market outlooks for autos and shipbuilding this year. Domestic crude steel production will drop 1 percent to 47.22 million tons due to the sluggish construction sector and ongoing furnace repair jobs, KOSA said.
Coupled with the Chinese oversupply, skyrocketing prices of raw materials are also burdening domestic steelmakers.
Iron ore and coal import prices jumped 119.2 percent and 71.5 percent, respectively, last year.
Steelmakers plan to press miners to refrain from any further increases.
On the other hand, this year was set by major Korean steelmakers as the beginning of large-scale investments.
POSCO is to embark on the first step of the 12 trillion won Indian mill project while Hyundai INI Steel Co.'s new mill worth 5 trillion won in Dangjin is slated to break ground. Last month, Dongkuk Steel Mill Co. began building a Brazilian facility capable of producing 1.5 million tons of slab annually.
In addition to cutting prices and production volume, steelmakers are considering structural countermeasures such as selling facilities and holding off on investment plans.
INI Steel sold off its electric furnace in Dangjin and shut down parts of the iron rod plant and electric furnace in Incheon last year.
POSCO postponed its expansion of stainless cold-rolled steel facility worth 300 billion won in Pohang while aggressively pushing for more investment in its eight strategic products including the higher-value added steel plates for automobiles. |
