Adding Insult to Injury
According to industry sources on May 5, the United States International Trade Commission (USITC) recently made an issue of PT Krakatau POSCO, that is, POSCO Indonesia, in deciding to extend the 48% anti-dumping duty on thick plates made in Indonesia. This is based on American steel companies’ claim that PT Krakatau POSCO is likely to increase its exports to the U.S. while increasing its production volume and South Korean steel companies under severe import restrictions can increase their bypass exports via their corporations in Southeast Asia.
These days, infrastructure-related steel demands are rapidly increasing in Southeast Asia and South Korean steel companies are regarding it as a land of opportunity where they can avoid U.S. trade protectionism. The Indonesian government is planning to spend more than US$34.21 billion on social infrastructure this year, up 15% from a year ago.
Under pressure from the U.S., South Korean companies are trying to offset the ongoing decline in their exports to the U.S. by selling more in Southeast Asia. The region is relatively free from U.S. trade protectionism now and, as such, they can export more to the U.S. from the region.
This is why POSCO formed the joint venture with PT Krakatau Steel, a local state-run steel company, and continued to increase its crude steel production volume there. PT Krakatau POSCO’s capacity utilization was raised from 63.4% to 98.7% between 2014 and last year. Upon entering his second term in March last year, POSCO Chairman Kwon Oh-joon met with Indonesian President Joko Widodo and said that POSCO would actively cooperate in the Indonesian government’s project for the construction of a mega steel industrial complex.
Many other South Korean steel companies are concentrating on Southeast Asia, too. For example, SeAH Steel started the construction of a steel pipe manufacturing plant with an annual production capacity of 75,000 tons in Dong Nai Province, Vietnam last year, when the pressure from the U.S. began to mount. At present, steel made in Vietnam is free from U.S. anti-dumping duties and steel demands are rising in Vietnam. Likewise, Nexteel is planning to set up a manufacturing plant in Thailand after the anti-dumping duty rate applied to its products jumped from 8% to 46% last year to hinder direct export to the U.S. to a significant extent. The USITC’s recent move, however, is posing a serious concern.
Nowadays, direct steel export from South Korea to the U.S. is becoming more and more difficult due to U.S. import restrictions. The amount plummeted from US$5.75 billion and 5.91 million tons to US$3.69 billion and 3.72 million tons between 2014 and last year. The U.S. imposed high anti-dumping and countervailing duties on individual steel materials and products starting from 2016 and, more recently, put Section 232 of the Trade Expansion Act of 1962 on the table to target every steel material and product at the same time. It is said that the direct export will become impossible if the act is actually implemented and an additional duty of 25% is imposed on steel made in South Korea.
Some South Korean steel companies are considering moving to the United States under the circumstances, but it cannot be a solution in that problems still remain about raw material procurement. U.S. companies are likely to be reluctant to supply raw materials, and then they will have to import raw materials from South Korea. However, the raw materials from South Korea are already subject to high import tariff rates and can be of no help for price competitiveness. POSCO America and TCC Steel USA, which entered the U.S. market long ago, have remained in the red for years due to the same reasons.