The Korean steel industry is reeling under a steep rise in costs at one hand, and a drop in demand due to the COVID-19 pandemic.
The increase in price is a direct result of the rise in production costs. Demand for steel from the automobile industry has diminished, local media reported on June 30.
Many South Korean mills with stockpiled inventories are struggling with weak end-user demand and have imposed production cuts at several plants.
The price of iron ore was at $102.48/mt on June 26, a 25pc rise from $82.44/mt on Feb. 7, according to the Resource Information Service of Korea Resources Corp. The price of iron ore surpassed $100/mt in early June for the first time in 10 months and remains unchanged.
The rise in price was also due to disruption at world’s largest steel supplier Vale in Brazil, and the economic impetus announced by China. Increase in iron ore’s price deepened steel industry’s distress.
Major steelmakers of Korea, namely POSCO and Hyundai Steel, are going through tremendously difficult business circumstances.
POSCO’s operating profit fell by 42pc to $705.3bn from January to March 2020 and is expected to drop by 70pc to $320bn in the second quarter (April-June).
Hyundai Steel is reeling under operational losses since the fourth quarter of 2019 (October-December). The company is likely to report an operating loss of $27.5bn for the third consecutive quarter in the second quarter of 2020 (April-June).
Steel companies might increase prices in the second half of 2020, as major steel companies in China and other countries are already hiking prices. Once production in automobile and shipbuilding industries start, steelmakers could be able to justify the increase in prices.