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S. Korean Gov’t Plans to Inject 300 Bill. Won for Steel Industry Innovation
Steel Industry Caught in Negative Growth
S. Korean Gov’t Plans to Inject 300 Bill. Won for Steel Industry Innovation
  • By Jung Min-hee
  • October 25, 2018, 09:42
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The domestic mid-size steelmakers’ operating margin decreased from 5.2 percent in 2016 to 3.8 percent in 2017 and the figure is forecast to fall below 3 percent this year.

The South Korean steel industry is struggling as it continues to experience oversupply excess globally, the downstream industry including automobile and shipbuilding is in a slump and protectionism is spreading worldwide.

BNK Finance Research Institute warned at the end of last month that the domestic mid-size steel companies would be caught in a negative growth due to the stagnation in both domestic demand and exports. In particular, these steelmakers’ operating margin decreased from 5.2 percent in 2016 to 3.8 percent in 2017 and the figure is forecast to fall below 3 percent this year. They are actually showing a loss, excluding the cost of operating fund supply and interest charges. The mid-size steel companies’ poor performance stems from a sluggish construction investment, which accounts for a substantial part of domestic steel demand, and a failure in recovery of major demand industries, including car and shipbuilding, in the short term. For export, conglomerates are seeking for outlets through the quota system, while small and mid-size companies have no means of export because of protective trade barriers. Given such difficulties, the government has decided to put 300 billion won (US$264.55 million) of emergency funds into the industry over the next five years but it's still unclear whether it would work.

The industry believes that it is not easy to find other ways to break the slump for the present. The biggest headache is excess supply. According to the Korea Iron and Steel Association, the production capacity of steel producers across the world exceeds the demand by 30 percent as of last year. With an offensive supply of China, which is mainly responsible for global oversupply, and stronger trade barriers of many countries, including the United States, domestic companies’ exports are being blocked. What's even worse, the domestic steel demand has been at a standstill for several years. The domestic consumption of steel materials has remained at the 55 million ton level from 55.8 million tons in 2015 and 57.1 million in 2016 to 56.4 million in 2017.

High value added strategy is the only card left for now to overcome the structural industrial slump. The government has budgeted 200 billion won (US$176.37 million) for grouping industrial trends by sector and developing high value added steel materials accordingly. For instance, it will develop a steel plate, which has a high density but less than 20㎛ thick, in the vehicle sector, keeping up with the era of environmentally friendly car, like electric vehicle. It will also invent a material that can resistant to low temperature for polar development in the shipbuilding sector as well as fire resistant rebar that maintain the intensity even in the temperature as high as 600 degree Celsius to brace for abnormal weather conditions in the construction sector.

The government is planning to develop innovative materials and help small and mid-size companies to secure processing technology at the same time. This is to make the effect of technology development reach not only major companies but also the steel industry as a whole. An official from the steel industry said, “The majority of steel manufacturers sells products of POSCO after reprocessing. It will be just a pie in the sky even when POSCO develops innovative, next-generation steel plate because they don’t have a capability to deal with it.”

To this end, the government will designate Pohang as the outpost of the steel industry innovation and set up a test bed. This is because it will be easier to exchange technologies with small and mid-size steelmakers as technology development infrastructure based on POSCO, Pohang University of Science and Technology (POSTECH) and Research Institute of Industrial Science & Technology (RIST) has been sustained for decades and Pohang Steel Industrial Complex is in the area. It will also promote Gwangyang, Dangjin and Changwon as well as the capital area and Gangwon Province as a regional technology base in the future.

When the plan becomes a reality, the government expects to foster 322 small giants in the steel industry and create about 7,809 jobs. The economic ripple effect is forecast to reach 1.04 trillion won (US$913.23 million). An official from the steel industry said, “It will be impossible to completely wipe out difficulties in the steel industry as long as the problem of global oversupply is fixed. However, it can make small and mid-size companies, which are hard up for investment capital, catch breath.”