'This Time, European Shutdown'... Steel Industry on Edge

The Volkswagen factory in Pamplona, Spain, closed due to the spread of the COVID-19 pandemic (Yonhap News)

[Asia Economy Reporter Hwang Yoon-joo] As global automakers such as Volkswagen temporarily shut down their factories in Europe due to the impact of the novel coronavirus disease (COVID-19), the domestic steel industry is becoming tense. Although the impact is limited due to relatively small export volumes to Europe, there is concern that a decline in the operating rates of upstream industries' facilities could affect second-quarter operations.

According to industry sources on the 19th, POSCO and Hyundai Steel have begun internal analyses regarding the impact of the COVID-19 situation on their business performance. POSCO expects the impact to begin affecting operations from March onward, while Hyundai Steel estimates that the first quarter, when its Chinese factories were shut down, will mark the bottom of its performance.

POSCO produced 9 million tons of automotive steel sheets last year. Of this, about 5.4 million tons were exported, with exports to Europe accounting for less than 10%. Hyundai Steel exports 800,000 tons out of its total automotive steel sheet production of 6 million tons, with European exports also below 10%. POSCO sells most of its export volume to East Asia, including China and Vietnam, and Hyundai Steel's export volume is even smaller than POSCO's, so the impact of European shutdowns is limited.

An industry official said, "If the COVID-19 situation intensifies in the United States following Europe, it could seriously affect operations," adding, "In a situation where steel demand is already shrinking, if the operating rates of upstream industry facilities decline, the reduction could be greater than expected, so we are closely monitoring the situation."

On the previous day, global top automakers such as Volkswagen and Daimler, which produces Mercedes-Benz, announced the suspension of factory operations in Europe. American automaker Ford also halted operations at its German plants in Cologne and Saarlouis, and Fiat Chrysler Automobiles (FCA) decided to suspend operations at six production plants in Europe, including FCA and Maserati plants in Italy. Hyundai Motor Company is operating its European plants normally but suspended operations at its Alabama plant in the United States after a COVID-19 case was confirmed.

Following factory shutdowns in China, similar situations are unfolding in Europe, leading the steel industry to internally view the first half of this year as the bottom of performance. To defend its performance, POSCO plans to reduce non-sales-related manufacturing expenses by more than 30% this year, as it did last year. Hyundai Steel is expected to accelerate business restructuring, including the sale of its pipe business division.

Baek Jae-seung, a researcher at Samsung Securities, said, "Korean steel companies, which were attempting price increases, have lost expectations for price hikes following the spread of COVID-19," adding, "Given that the global spread of COVID-19 is expected to cause a global economic slowdown, it is very difficult to anticipate structural growth in steel and metal demand."

This content was produced with the assistance of AI translation services.