Prolonged Downturn in the Steel Industry... Facing a Wave of Restructuring

Korea Ratings (KR) has analyzed that, as the prolonged downturn in the domestic steel industry continues to weaken performance, a fundamental transformation through restructuring is necessary.

On September 22, KR made this assessment during the webcast "The Post-Free Trade Era: Global Trade Order Reorganization and Industry Impact."

According to KR, the combined standalone sales revenue of 14 domestic companies-including POSCO, Hyundai Steel, Hyundai BNG Steel, Hyundai Special Steel, and Dongkuk Steel-fell from 90 trillion won in 2022 to 74.3 trillion won in 2024. The downward trend persists, with sales in the first half of this year also declining by 6.84% year-on-year to 35.4 trillion won.

Jung Iksoo, Senior Analyst, stated, "The combined performance of steelmakers continues to weaken," adding, "Both sluggish sales volume and falling unit prices have narrowed sales and margin spreads, while lower operating rates have increased fixed cost burdens, further constraining profitability."

KR identified the supply-demand imbalance as the main cause of this performance deterioration. Analyst Jung explained, "Globally, since 2022, steel consumption has declined, particularly in China, deepening the supply-demand imbalance." He added, "Given that U.S. tariffs are having a broader and stronger impact on the global economy and trade environment than expected, steel demand is likely to remain sluggish in the short term."

KR assessed that, from the second half of this year, the domestic steel industry has faced difficulties in both domestic and international markets due to the full impact of U.S. tariffs. He said, "Since June, steel tariffs have been sharply raised to 50%, and the scope has expanded to downstream products such as home appliances, electrical equipment, and auto parts." He continued, "Steel exports to the U.S. have shown a marked decline since July, making the risk from U.S. tariffs increasingly evident."

Prolonged sluggishness in steel demand, driven by the downturn in China’s real estate market, has led to global oversupply. In response, the Chinese government has raised the possibility of restructuring by mentioning production management in the steel industry. However, China’s unstable economy is expected to be an obstacle.

He explained, "China’s recent economic weakness and diminished fiscal capacity may hinder the implementation of restructuring, as the associated costs, employment reductions, and industry contraction could add further economic burdens."

For the domestic steel industry, which faces both demand imbalances and trade barriers such as tariffs, restructuring is expected. He said, "Domestic market growth has reached its limit," adding, "Global steel market dynamics are changing due to supply chain reorganization and demands for low-carbon transition."

Additionally, KR predicted that aggressive overseas investments by domestic steelmakers will become a future financial burden. POSCO has pursued joint upstream investments in India and the United States, while Hyundai Steel and the Seah Group have also invested in the U.S. and the U.K. He emphasized, "Overseas investment appears to be an unavoidable choice for growth, but it is important to achieve fundamental improvement based on concurrent self-rescue measures and domestic business restructuring."

KR analyzed that among domestic companies, Seah Steel, Seah Besteel, and Seah Changwon Special Steel face higher business risks. He said, "Seah Steel is heavily concentrated in the steel pipe business, which is highly exposed to both domestic and external risks. However, its financial stability, strengthened by several years of strong performance, helps offset short-term business risk."

He continued, "For Seah Besteel, the settlement of ordinary wage payments is a potential burden, while for Seah Changwon Special Steel, investments related to special education classes for children in the U.S. pose a potential risk. Going forward, it will be important to appropriately control financial burdens based on the companies' own cash generation capabilities."

Meanwhile, POSCO and Hyundai Steel were assessed to have relatively lower business risk, due to risk diversification through a wide range of steel products and a high proportion of cold-rolled products focused on hot-rolled and high value-added industries that can be consumed internally.

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