"Yen Weakness Floods Japanese Steel... Steel Industry Plagued by Triple Hardships"

Sharp Surge in Steel Imports This Year
Construction Market Slump and Weak Demand
Raw Material Price Hikes Hampering Growth

The steel industry has begun to worry about a prolonged downturn. Both demand and supply conditions are unfavorable. There are also pessimistic voices suggesting that recovery will be difficult even in the first half of next year. In a situation where large-scale investment is urgently needed for the transition to '2050 Carbon Neutrality,' the profit decline caused by the slump is painful.

Domestic crude steel production totaled 44.97 million tons from January to August, down 2.2% compared to 45.99 million tons in the same period last year. Construction, which accounts for the largest portion of steel demand, is in recession, so supply is not increasing. On the other hand, imports of steel from China and Japan into the domestic market have surged this year.

During the same period, Chinese steel accounted for 44.5% and Japanese steel for 38.8% of domestic steel imports, with the two countries making up 83.3%. This is a significant increase from 73.5% in the same period last year (China 34.8%, Japan 38.8%).

China's steel demand has decreased due to a less-than-expected reopening effect after the COVID-19 endemic phase. However, crude steel production has increased, and excess production caused by sluggish domestic demand is being exported to neighboring countries such as Korea.

Japanese steelmakers are actively exporting by taking advantage of the weak yen. The yen, which rose to 1,003 won in April, fell to 903 won as of the 29th. Considering it was over 1,100 won three years ago, this represents a 20% decline. Japanese imports are increasing mainly in hot-rolled steel sheets (up 42.5% compared to the same period last year).

On the 12th, NICE Credit Rating Agency stated in a report, "The weak yen and the expansion of Japanese steel inflows into the domestic market will weaken the position of domestic steelmakers in the short term," and analyzed that "in the mid-to-long term, it is a structural risk factor for the domestic steel industry through increased steel supply burdens and downward price pressure."

In this situation, domestic steel exports are also decreasing. From January to August, total exports of all steel products, including steel materials, secondary processed products, and raw and subsidiary materials, amounted to 19.2 million tons, down 3.4% from the same period last year. In terms of value, exports dropped 11.1% to $23.7 billion.

Although supply volumes have increased with China and Japan entering the market, there seems to be little prospect for improvement in domestic steel demand.

On the 24th, Um Ki-cheon, head of POSCO's Marketing Strategy Office, said during the earnings announcement, "The market conditions will not improve in the fourth quarter and are expected to remain weak," adding, "The weak trend will continue until the first quarter of next year, and only by then, considering geopolitical crises, high oil prices, and high interest rates, will it be possible to make a mid-to-long-term outlook."

Rising raw material prices are also hampering steel companies. According to the Ministry of Trade, Industry and Energy's raw material price information, the price of iron ore, the main raw material, was $119 per ton as of the 26th, up 35% from $88 a year ago. During the same period, the price of coking coal for steelmaking also rose 16%, from $299 to $348 per ton.

The steel industry's short-term profit slump is further increasing the investment burden for the goal of 'decarbonization.' The World Steel Association estimates that at least $3.5 trillion (4,723 trillion won) is needed for the steel industry's decarbonization. Both POSCO and Hyundai Steel are investing in hydrogen reduction steelmaking and other technologies aiming for carbon neutrality by 2050.

The steel industry plans to expand sales in industries with growing demand and good business conditions, such as automobiles and shipbuilding, for the time being. An industry insider said, "We aim to secure profitability by focusing on high-priced premium products that can be technically differentiated," adding, "The possibility of a short-term turnaround does not seem high."

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