Steelmakers’ Cost Burden Increasing
South Korean steelmakers are going through difficulties as the spread of COVID-19 is leading to a decline in demand, raw material prices are unstable, global trade wars are going on and greenhouse gas emission rights are acting as a burden in terms of cost.
The per-ton price of the emission rights has jumped from 27,500 won to 40,500 won in just one year. In addition, the price has risen by no less than 74 percent in two years. This is because companies are buying the rights in quantity prior to strengthening of the regulations. In the third emission trading scheme scheduled to be effective from 2021 to 2025, enterprises’ mandatory reduction or emission right purchase is 10 percent instead of 3 percent.
Steelmakers’ cost burden is increasing under the circumstances. Hyundai Steel, which spent 110 billion won to buy emission rights last year, must pay twice the amount to do so this year. The same applies to many more South Korean steelmakers, including Dongkuk Steel. “The costs related to the rights are reflected in our production costs as they are,” one of them explained, adding, “With the pandemic seriously affecting our business, there is no other option but to reduce production.”
Those companies are complaining about the emission trading scheme led by the Ministry of Environment. “Although the original purpose of the scheme is to reduce greenhouse gas emissions by enhancing market functions, the ministry is focusing on regulations in running the scheme,” they pointed out, adding that the ministry needs to work more closely with the Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy to make better use of market functions. They also mentioned that their burden is much heavier than power generation companies, which emit a lot of greenhouse gas, with Korea Electric Power Corporation paying 80 percent of their emission right purchase cost in place of them.