Over a Thousand SMEs Anxious as POSCO Halts Delivery of 'Stainless Scrap'

70% of Domestic Production Purchased
Significant Damage to Stainless Steel Steelmaking Facilities
Recovery Period Expected to Exceed 6 Months
About 1,000 Direct and Indirect Partner Companies
Chain Impact on Small Businesses
Large Companies Move to Expand Exports

On the 7th, employees at the Pohang Steelworks' 3rd Continuous Casting Plant, swept by Typhoon Hinnamnor, are shoveling out the mud that flooded in.
[Photo by POSCO]

[Asia Economy Reporter Kwak Min-jae] In the warehouse of scrap metal collection company A located in Gimhae-si, Gyeongnam, a pile of stainless steel scrap that has not been shipped for over ten days is stacked high. Until recently, there was no room for inventory to accumulate, but the impact of Typhoon Hinnamnor, the 11th typhoon that struck the POSCO Pohang Steelworks fifteen days ago, is tightening the lifeline of small and medium-sized enterprises. This company is a second- or third-tier supplier that delivers scrap worth 2 to 3 billion KRW annually to a first-tier vendor supplying scrap used as raw material at the stainless steelmaking plant of Pohang Steelworks.

The Pohang Steelworks has suffered unprecedented flooding damage due to the typhoon, and among the affected facilities, the stainless steelmaking equipment and rolling equipment (which processes the thickness of steel by applying heat and pressure) were submerged and have stopped operating. About 50% of the raw materials for stainless steelmaking come from stainless steel scrap collected by these companies, so when the production facilities stop, it naturally becomes impossible to purchase raw materials.

The Pohang Steelworks uses about 20,000 tons of stainless steel scrap per month on average. POSCO purchases about 70% of the domestic supply, amounting to approximately 40 billion KRW monthly. When POSCO could not purchase raw materials, problems arose for about 1,000 small and medium-sized enterprises that trade directly or indirectly with POSCO. Stainless steel scrap is supplied to Pohang Steelworks through 2 to 3 stages by recycling waste collection companies, commonly called ‘gomulsang’ (junk dealers), or specialized scrap collection companies, categorized by scale.

POSCO designates about ten large first-tier companies to supply scrap, but including the lower-tier companies that supply scrap to these ten companies, the total number of involved companies reaches about 1,000. However, when POSCO could not purchase raw materials due to typhoon damage, these companies also faced supply disruptions, causing a chain reaction affecting even small businesses.

The bigger concern is the potential for prolonged disruption. Industry insiders estimate that the damage to the stainless steelmaking and rolling facilities at Pohang Steelworks is more severe than publicly known and that recovery will take more than six months. Since there is no suitable alternative market in Korea to replace POSCO, waiting indefinitely while bearing risks is not an option. A representative from the stainless steel scrap distribution industry said, "POSCO usually decides and notifies the purchase price of stainless steel scrap around the 10th of each month, but there has been no news this month, and they say there are no ordering plans. The immediate problem is the inability to pay for already received goods in a chain reaction, but if the situation prolongs, some companies may face cash flow blockages."

As the situation unfolds, there is also a movement among large scrap companies to expand exports. Until now, stainless steel scrap generated domestically was only partially exported to countries like India, but recently contacts with Chinese stainless steel manufacturing companies have noticeably increased. A distribution industry official in the Pohang area of Gyeongbuk said, "Considering the recent market conditions and exchange rates, fortunately, we have export competitiveness. If exports increase, it could sequentially ease the supply and demand for small and medium-sized companies."

Companies that supply stainless steel scrap and generate annual sales exceeding 100 billion KRW domestically include B&V Steel, Gyeongbu Resources, KENP, and Manhae Metal.

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