Tough Times
The steel industry, dubbed the “staple of industrialization,” is suffering from a triple handicap. There seems to be no light at the end of the tunnel, since front-line industries such as construction and shipping are still hard hit by the recession and a supply glut.
To make matters worse, recently their clients have begun pressuring for lower prices. Their raw material, iron ore, went down in price, giving a brief relief. But before tasting its benefits, the automobile and shipping companies began to exert pressure. In fact, the prices for some types of steel are dropping one by one.
The problem is that the domestic steel industry’s crisis will not end any time soon, because it will take time for the industry’s situation to turn around. Experts are advising that in order to ride out the crisis, the industry needs product differentiation together with product cost competitiveness.
According to the steel industry on March 26, the biggest culprit behind the crisis is oversupply. Domestic supply is not fully consumed domestically, but on top of that there has been an overflow of low-priced Chinese imports, which seems like a real kick in the teeth to profitability.
According to the World Steel Association, worldwide crude steel oversupply has been hovering at over 500 million tons per year since 2012. 2010’s oversupply of 480 million tons dropped to 469 million tons in 2011, but ballooned to 521 million tons in 2012.
This kind of supply glut stems from Chinese steel companies expanding their crude steel manufacturing all at once. According to China Iron and Steel Association, in January and February this year, their average daily crude steel production was 2,217,000 tons, 210,000 tons up from last December and the highest production in history. China recently undertook restructuring on steel companies, but is still in need of fundamental solutions for oversupply.
The industry associate says, “The world steel oversupply problem sparked by China is not likely to be easily solved. Therefore, steel companies’ woes will not go away for a while.”
The problem is that there is no promising new demand, since front-line industries like construction and shipping are not getting out of the recession as fast as expectations. Therefore, steel companies are complaining that they feel like they are drowning in what could be a bottomless pit.
In the meantime, the domestic steel market is expected to see a rise of 3 percent in steel supply year-on-year, due to the full-scale operation of new facilities at conglomerates such as POSCO and Hyundai Steel. In contrast, the demand increase will stop at 1-2 percent.
The recession in shipping and construction is judged to last, and domestic automobiles are also making only an insignificant recovery.
Experts are voicing their concerns that the crisis will last for a while, citing a steel supply glut due to manufacturing facility expansion and a grim outlook on the recovery of the front line industries.
Therefore, the industry is looking at upgrading manufacturing technology and differentiating products. A good case on hand is Hyundai Steel Company exploring a new market by developing strategic products such as “New Steel H-Beam” to overcome the depressed domestic market.
POSCO is also cutting down on costs and increasing high-value product sales through innovative measures such as developing FINEX technology, which is the world’s one and only advanced technology in manufacturing molten metal.