Abstract
The South Korean steel industry was showing signs of stabilisation in Q209
with some segments,
particularly rebar, reporting growth in output as
inventories diminished, although flats remained
depressed due to the
decline in the automotive industry. Forecasts in BMI’s latest South
Korea Metals
Report suggest it will be some years before crude steel
production capacity utilisation exceeds 90%, with
the sector struggling to
compete with Chinese producers as well as the lingering effects of the
recession
on orders for the shipbuilding industry.
In the first four
months of 2009, crude steel output was down 18.6% y-o-y to 14.62mn tonnes.
There were
signs that the steel industry had passed its low-point in
February and by April monthly output was at
4.09mn tonnes, up 8.5% over
March but down 9.5% year-on-year (y-o-y). There were further signs of
recovery in May when South Korea’s billet imports were estimated at
60,000 tonnes, up slightly from
59,000 tonnes in April but still down on
the 62,000 tonnes imported in March. While demand continued
to be weak, it
had stabilised at around 60,000 tonnes per month, assisted by a stable
exchange rate and a
falling inventory.
South Korea’s rebar
inventory dropped sharply in Q209, suggesting that the longs market may be
reviving. The declines are related to an increase in exports as stimulus
projects in Asian countries increase
demand for steel from construction
companies. In April 2009, seven rebar producers in South Korea sold
820,000 tonnes of rebar, surpassing 800,000 tonnes for the first time since
July 2008. South Korea
reported a strong rise in exports of H section with
Hysco and Dongkuk Steel selling 195,000 tonnes – an
increase of
10.8% compared with March.
Meanwhile, shipbuilders are seeking to
diversify markets to boost output to offset the effects of recession
in
their main export markets. New contracts are dedicated to energy-related
projects and crude shipping.
Daewoo Shipbuilding and Marine Engineering
has signed an agreement with the government of Oman
to develop an
industrial area there, which if finalised with be worth around US$12bn. The
four largest
South Korean shippers are also seeking orders for vessels and
offshore facilities worth more than
US$25bn from Brazil’s Petroleo
Brasileiro SA. Samsung Heavy and Daewoo Shipbuilding are in the
best
position to win orders for offshore facilities such as drill ships and
semi-submersible drilling rigs, but
Hyundai Heavy and STX Shipbuilding may
also be in the running.
The Korea Iron and Steel Association (KISA) has
said that capacity will increase by 6.7% y-o-y to
64.2mn tonnes per annum
(tpa) in 2009 from 60.14mn tpa in 2009. Hyundai Steel and Dongkuk Steel
are scheduled to commission a new heavy plate mill of 1.5mn tpa capacity in
H209. Electric arc furnace
(EAF) capacity will rise 11.9% to 30.39mn tpa
in 2009, while blast furnace capacity will increase 2.4% yo-
t to 33.77mn
tpa. A total investment outlay of KRW10,000bn is planned over 2009, of
which
KRW7,300bn will come from POSCO (up by almost 50% y-o-y). KISA
expects capacity to rise to up to
70mn tpa in 2010, assisted by
POSCO’s planned new facilities at its Kwangyang works with heavy
plate
production of 1.5-2.0mn tpa. Output is set to be stimulated from
2010 with the development of the
Dangjin integrated steel complex with
annual steel production capacity of 8mn tonnes, including 6.5mn
tpa of
hot-rolled band and 1.5mn tpa of plate. Completion of the first blast furnace
is due in 2010 with a
second due in 2011.
The key question is how much
of this additional capacity will be utilised. BMI’s crude steel
production
forecast of 47.69mn tonnes in 2009 would imply a utilisation
rate of just over 74%. We forecast output at
51.84mn tonnes in 2010, with
output growing by 8.7% as the recovery picks up pace. However, this will
still mean capacity utilisation sustained at around 74%, well down on the 89%
utilisation rate estimated in
2008. POSCO CEO Chung Joon-Yang voiced his
concern that the crisis in the steel industry could last
between two to
three years, leading to a 30% reduction in output. It will therefore be some
years before
the South Korean steel industry approaches its full
potential, with BMI’s forecasts showing that 2008
output levels will
not be exceeded until 2011. Growth will be limited by the maturing of the
domestic
steel market and the rapid growth in China’s industrial
capacity, which has limited steel and steel product
export growth,
although there is still room for growth.
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