"Up to 2.4 Trillion Won Damage Expected if Pohang Steel Supply is Shocked... Rapid Normalization Needed"

Bank of Korea Reviews Economic Impact of Steel Production Disruptions
Concerns Over Delayed Recovery of Flood-Damaged Pohang Steelworks

Pohang Steelworks Blast Furnace No. 3 Tapping Scene [Image Source=Yonhap News]

The Bank of Korea released an analysis stating that if the steel supply shock continues at the steel mills in the Pohang region, which suffered flooding damage from the typhoon last September, production disruptions amounting to 1 to 2 trillion KRW could occur across the entire industry.

The Bank of Korea explained that although the overall impact on the industry is not yet significant, a delayed recovery could negatively affect steel exports, making a swift normalization necessary.

On the 21st, the Bank of Korea announced through its BOK Issue Note titled "Reviewing the Economic Impact of Steel Production Disruptions" that it examined the damage status of the steel industry in the Pohang region and analyzed the impact of steel supply disruptions on major downstream industries.

Due to the influence of Typhoon Hinnamnor last September, the entire product production operation at the Pohang Steel Mill was halted, and nearby plants such as Hyundai Steel, Dongkuk Steel, and SeAH Steel Pohang plants were also flooded.

Although production facilities are being rapidly restored thanks to the efforts of the Pohang steel mills and government support, concerns have arisen that the restoration period may be delayed until the first quarter of next year, contrary to the initial expectation of completion within this year.

According to the report, Pohang crude steel production volume sharply decreased by 62.9% in September and 29.4% in October compared to the same period last year. Pohang steel product exports also showed a declining trend with -56.5% in September, -38.5% in October, and -2.8% in November.

The decline was particularly notable in stainless steel used in home appliances and electrical steel sheets, the main material for electric vehicle motors. The Bank of Korea's analysis of the supply chain structure between Pohang Steel Mill's products and major demand industries estimated that the steel usage ratio is high in shipbuilding and automobile sectors.

Flooded Pohang Steelworks site view [Image source=Yonhap News]

Calculations using a supply-induced model to assess the impact of the steel supply shock indicated production disruptions of 500 billion to 700 billion KRW in major downstream industries and 1.5 trillion to 2.4 trillion KRW across the entire industry. This assumes a steel supply disruption scale of 970,000 to 1.5 million tons.

Among downstream industries, the ripple effects were largest in the order of automobile (300 billion to 500 billion KRW), construction (100 billion to 200 billion KRW), and shipbuilding (30 billion to 50 billion KRW).

However, the Bank of Korea explained, "With the early restart of the Pohang Steel Mill's 2nd hot rolling plant on the 15th of this month, the industrial ripple effects are likely to be close to the lower end of the estimated range."

Until last month, steel supply disruptions were found to have hardly occurred in major downstream industries. Shipbuilding companies were able to respond by holding large inventories and changing suppliers, and the automobile sector avoided risks through alternative production at the Gwangyang Steel Mill.

However, special steel is not stocked by shipbuilding companies, so if the plant is not restored within this year, LNG ship production disruptions are highly likely. Additionally, electric vehicle manufacturers could face negative impacts on EV production if there are problems in securing non-oriented electrical steel sheets.

The Bank of Korea emphasized, "Since steel is a key intermediate good in the industry, if the complete normalization of steel production in the Pohang region is delayed, it could negatively affect related industry production and steel exports, so a swift normalization is necessary."

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