South Korean steelmakers are facing tough times due to a drop in global steel demand, rising raw material costs, and increasing competition from cheaper imports. Prices of steel products are falling, and the situation is exacerbated by economic slowdowns and labor issues. The industry doesn't expect a recovery anytime soon.
South Korean steel companies, notably the world-famous POSCO, are bracing for a prolonged downturn in steel demand. They're dealing with a combination of factors: a slowing global real estate market, increasing costs for raw materials, and an influx of cheaper steel from other countries.
Just a few months ago, hot rolled steel plates were trading at $670 per metric ton, marking an 8.1% decline from five months earlier. That's a 13.3% drop compared to the beginning of the year. Wholesale steel bar prices have also taken a hit, now at $670 per metric ton, down by 12.4% from June and 14.6% from the start of the year.
The steel industry in Korea had optimistically predicted that steel prices would rebound in the second quarter of this year. However, the prolonged economic slowdown has dashed those hopes. Particularly, the lingering slump in the Chinese property market has significantly affected steel prices. POSCO's parent company, POSCO Holdings Inc., confirmed this in their latest earnings call.
Despite low demand, raw material costs are surging. This is partly because of labor strikes in major coking coal-producing nations like China and India. For instance, the iron ore price in the third quarter increased by $10 per metric ton compared to the prior quarter, while the coking coal price surged by $100 per metric ton, affecting the profitability of steelmakers.
Competition is another challenge that Korean steelmakers face. There is a surge of high-quality yet cheap steel products coming from Japan, owing to the weak Japanese yen. The quality of low-priced Chinese steel products has also improved, making them more of a threat.
Adding to the woes is the looming threat of labor strikes. POSCO's labor union is considering going on strike for the first time in the company's 55-year history, further complicating an already difficult situation.
The South Korean steel industry is facing a multitude of challenges, from declining prices and rising raw material costs to fierce international competition. With no immediate solution in sight and a potential labor strike on the horizon, the sector is in for a difficult winter. Recovery seems unlikely in the near term, making it imperative for companies to strategize for the long haul.