No other Option

For cut of steel production, POSCO will adopt the so-called flexible production system instead of shutting down blast furnaces.
For cut of steel production, POSCO will adopt the so-called flexible production system instead of shutting down blast furnaces.

POSCO has decided to make the first cut in production in 12 years since 2008. Even major steelmakers at home and abroad, such as ArcellorMittal and Hyundai Steel, pruned production volume, but POSCO did not. A decline in demand, however, due to the economic recession finally coerced the steelmaker to revise down its production volume.

POSCO plans to reduce production capacity of 980,000 tons in May only by lowering the utilization rate of its production lines such as cold- and hot-rolled steel sheets at Pohang and Gwangyang Works, said sources in the steel industry on May 10. Specifically, POSCO will cut 180,000 tons at Pohang Works and 800,000 tons at Gwangyang Works. Considering the fact that the crude steel production of Pohang and Gwangyang Works in the second quarter of 2019 hit 8.85 million tons, POSCO will decrease its average monthly production by more than 30 percent.

The main culprit behind this cut is a slowdown in demand from the downstream industry, triggered by the novel coronavirus crisis. In particular, a decline in automobile production had a big impact on the cut. Korean automobile production (approximately 813,000 units) in the first quarter of 2020 shrank about 15 percent from the same period of 2019, and is expected to decrease by 20 percent in the second quarter (856,000 units). The automotive industry is the largest consumer that buys 30 percent of total steel production. POSCO has decided to make a big cut in production at Gwangyang Works since Gwangyang Works mainly produces steel products for automobiles. In addition, demand for steel plates for ships has been on the decline.

The production method chosen by POSCO this time is the so-called flexible production system in which the steel industry regulates product output instead of shutting down blast furnaces. The method is called “the last resort” in the steel industry. A blast furnace maintains its internal temperature above 1,500 degrees throughout a year to produce molten iron. It is difficult to actually stop a blast furnace, because even after stopping its operation for a day, molten iron hardens so it will take several months to restart the blast furnace.

It will be the second time since POSCO's establishment that POSCO will start to cut production. At the time of the global financial crisis in 2008, POSCO reduced steel products such as hot- and cold-rolled steel over 570,000 tons for two months due to inventory accumulation and a slump in the overall manufacturing industry.

The COVID-19 pandemic has forced global steelmakers such as ArcellorMittal, Nippon Steel, and US Steel to put a halt to operating their blast furnaces and start production cuts. In Korea, Dangjin Steel Mill of Hyundai Steel is considering stopping the operation of an electric hot-rolled furnace. However, thanks to the repair of Gwangyang Blast Furnace #3 that started in the first quarter of the year, POSCO did not artificially cut production due to natural reduction effects from the repair, but it seems to reach its limit. POSCO is even considering extending the repair period of Gwangyang Blast Furnace #3 to reduce production.

“We are also considering a plan to postpone the restart time of the Gwangyang Blast Furnace #3 scheduled for the end of May to August or September,” a POSCO official said. "We are reducing material input and adjusting production by stopping iron scraps, a material for molten iron in order to decrease production from the blast furnace."

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