Rus-Ukr War Prolongation and China Blockade Drive Steel Prices Up... Industry Faces Widespread Pressure

Scrap metal is piled up at a resource development company in Gangseo-gu, Seoul. Photo by Jang Jin-hyeong aymsdream@

The price of iron is soaring day by day, turning into gold (金) value. This is due to the prolonged war between Russia and Ukraine, China's lockdown measures, and the steel industry's increased use of scrap metal to reduce greenhouse gas emissions, which has boosted demand. As the price of iron, a basic raw material for the manufacturing industry, continues to skyrocket, companies are facing mounting cost pressures across the board.

According to the Ministry of Trade, Industry and Energy on the 16th, the domestic wholesale price of iron scrap currently stands at 735,000 KRW per ton. This is 295,000 KRW (about 67%) higher compared to 440,000 KRW at the end of April last year.

Iron scrap is a basic raw material used for producing molten iron. It is utilized in rebar, heavy plates, cold-rolled steel sheets, and is used throughout industrial activities. The rise in prices of iron scrap and other steel products is imposing cost burdens across the industry and raising concerns about profit erosion.

The increase in steel prices is largely due to supply shortages. The prolonged war between Russia and Ukraine, both major players in the steel industry, is adversely affecting the global supply chain. In fact, the Azovstal steel plant located in Mariupol, southern Ukraine, one of the fiercest battlegrounds in the Russia-Ukraine war, is one of the largest steel plants in Europe.

The European Union (EU) has decided to triple the tariffs on Russian scrap metal until July. Russia recently announced "economic retaliation measures against unfriendly countries and entities," restricting raw material exports. Russian scrap metal accounts for about 10% of domestic import volumes.

The industry expects the annual scrap supply, usually around 20 million tons, to increase to 25 million tons this year, which is likely to push prices even higher. The second quarter is expected to reflect the negative impact of China's zero-COVID policy lockdown measures. While steelmakers have quickly passed on the cost burden to product prices due to the sharp rise in raw material prices such as coking coal and iron ore, the pressure from rapid price increases is also growing.

A steel industry official expressed concern, saying, "Recently, price negotiations with other companies for heavy plates, rebar, and color-coated steel sheets have been continuously delayed." Industries such as shipbuilding, automotive, and construction, which use large amounts of heavy plates and steel sheets, are facing cost burdens. Especially, shipbuilders, who are continuing to receive orders despite a prolonged recession, are uneasy. It takes about two and a half years from receiving a ship order to actual construction, and as the number of ships to be built increases, the burden from rising steel prices is inevitably growing.

A shipbuilding industry official said, "Orders are continuing mainly for eco-friendly ships such as LNG (liquefied natural gas) carriers, but the excessive rise in steel prices makes profitability improvement seem distant."

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