Chinese steelmakers are penetrating deeper into the Korean steel market while Korean steelmakers are struggling to cope with strengthening U.S. protectionism. There is a possibility of cheaper Chinese products further expanding their share of the Korean steel market as an upturn in Korean shipbuilders’ order receipts has sparked off demand for steel plates.
According to the Korea Iron and Steel Association on October 17, thick plate imports to the Korean market in September amounted to 149,488 tons, a monthly high. Korea’s thick plate imports stayed at less than 100,000 tons until February, but have since grown steadily and rose nearly 60% from the beginning of this year.
In 2016, 220,164 tons of thick plates was imported per month on average, but last year, the volume dropped to an average of 102,205 tons per month. Recently, however, import volume has been on the rise again. In particular, imports of Chinese thick plates, which account for more than 60% of Korea’s total thick plate imports, are increasing significantly. In September, Korea imported 84,236 tons of Chinese thick plates, which means their import volume more than doubled from the beginning of this year (The average of the January to February period: 38,595 tons). This year, Korea’s average monthly thick plate imports from China already exceeded those of last year (63,947 tons).
The spike in the import of Chinese thick plates spells a big trouble for Korean steelmakers such as POSCO, Hyundai Steel and Dongkuk Steel Mill. The average price of Korean thick plates over the past one year stood at 600,000 won per ton. Korean steelmakers raised the price two times this year due to rising raw material prices. Currently, the price is standing around 700,000 won per ton.
Last year, steel plates produced by the top three Korean steelmakers amounted to about 9 million tons. Of the total, they sold 5.6 million tons in the domestic market, of which 60% were steel plates used for shipbuilding. The price of steel plates for shipbuilding surpassed one million won per ton ten years ago when the Korean shipbuilding industry was booming. But a slump in the shipbuilding industry more than halved the price.
Steelmakers explained that they marked up the price of thick plates this year as they needed to normalize it after suffering from loss during the slump in the shipbuilding industry. The hike in prices of Korean steel plates is one reason for the increase in Korea’s imports of Chinese steel plates.
The increase in imports of Chinese steel products may have a negative impact on the Korean steel industry, which has much anticipation for a long-awaited recovery in demand for steel plates. Korean shipbuilders such as Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering, have put up a good fight in landing orders in the global shipbuilding market, outperforming their Chinese counterparts. In Korea, demand for steel plates is expected to rise, but in contrast, demand is projected to sink in China. China's steelmakers, which will face a decline in domestic demand for steel plates, are highly likely to seek out opportunities through exports.
Recently, the Chinese government’s policies for steel production cuts have shown a sign of easing. Some experts forecast that as China is experiencing difficulties due to the trade dispute with the U.S., it will allow steelmakers to ramp up steel production again, shifting its focus from solving environmental problems to vitalizing the Chinese economy.
"Chinese steelmakers have a production capacity about 15 times that of Korean steelmakers. Thus, if some of their products are exported to Korea, it will deal a big blow to Korean steelmakers," said Hong Jeong-eui, head of the Trade Cooperation Office at the Korea Iron and Steel Association.
In particular, Korean shipbuilders, which are in a difficult management environment, are highly likely to choose Chinese products over Korean ones, if Chinese steelmakers wage a price war.
The Korean steel industry will be hard pressed to find a suitable countermeasure against Chinese steelmakers in the possible price war. This is because it is difficult for the Korean government to take actions such as imposing anti-dumping duties or initiating a safeguard, even though countries such as the U.S., EU nations, Canada, Turkey and India have lately been raising tariffs in order to cope with import steel products.
"It is not easy to address this issue as the Korean government’s sanction on Chinese products may ignite a friction between Korea and China in terms of politics and diplomacy and lead the Chinese government to retaliate against Korean steelmakers that have moved into China."