Korean steel industry leads national economic growth

Korean steel industry leads national economic growth. The Korean steel industry has been playing a key role in boosting the nation's economic growth for more than three decades. Since Pohang Iron and Steel Company started production of crude steel in 1973, Korea's annual steel output has grown from 1.2 million tons in 1973 to 53.6 million tons in 2008, according to data by the Korea Iron and Steel Association, or KOSA. The steel sector's contribution to the economy has also expanded in recent years, with its output as a share of gross domestic product increasing from 2.2 percent in 1995 to 2.6 percent in 2008. Steel exports amounted to 4.4 percent of the total exports in 1995 but the figure rose to 6.8 percent in 2008, according to the association. Korea ranked sixth in the world in terms of annual steel output with 53.6 million tons of production as of the end of 2008, according to industry data, while China was the largest steel-producing country in the world with 500.5 million tons of steel production in 2008. By company, POSCO is the world's fourth-largest steelmaker with production reaching 34.7 million tons in 2008. The nation's second-largest steelmaker Hyundai Steel ranks 30th with 10 million tons of annual steel production. About 75 percent of steel produced by local companies is supplied to the local market, of which 32.5 percent goes to construction, 23.2 percent to shipbuilding and 22.3 percent to automobile manufacture. The remaining 25 percent is shipped to overseas markets, of which 22.1 percent goes to Southeast Asia, 17.8 percent to China, 13.2 percent to Japan and 10.8 percent to the United States. Despite the Korea's large capacity for steel production, the nation has become net importer of steel in 2002 because of the rapid growth of Korean automobile and shipbuilding industries. Korea's steel industry is deemed to have entered maturity in 2000 as a quick growth of steelmakers resulted in a partial supply glut and a severe price competition on increased imports, especially from China, industry officials said. Chinese steelmakers doubled their annual output capacity to 400 million tons between 2003 and 2007, and the figure exceeded 500 million in 2008. China's share in the global crude steel market jumped to 37.7 percent in 2008 from 26.2 percent in 2004, according to KOSA. Even though the Chinese government is trying to push down the local steel sector's capacity expansion and encouraging mergers and acquisitions between steelmakers, China's crude steel capacity is expected to continue to grow from 553 million tons in 2008 to 634 million tons in 2010, the association said. "This overcapacity will be the key challenge for the global steel industry next year. Korean steelmakers will have to find fresh demands to survive the price competition," said Chang Lee, analyst with Woori Investment & Securities. "The cold-rolled steel sector, in particular, will be hugely affected by the globally excessive capacity." Weak global demand for steel and falling prices of export goods had hit local steel makers hard in the first half. POSCO's operating profit plummeted by 70 percent to 373 billion won in the first quarter from a year earlier, and by 91 percent to 170 billion won in the second quarter year-on-year. However, the steel industry is showing a gradual recovery in the second half, with the global steel output hitting the bottom in April, an industry report said. "Coming into 2010, the robust demand in emerging markets including China and the re-stocking demand in advanced countries will push up the world crude steel consumption by 10 percent to 1.2 billion tons," Hana Institute of Finance said in a report. "However, the output capacity is also likely increase to 1.8 billion tons. So, the steel industry will face a supply glut," the report said. Chang Lee, analyst with Woori Investment & Securities, also said the local steel industry will see a gradual recovery along with a rebound in the global demand next year. However, the recovery will be slow and the steel industry will find it difficult to recover to a pre-crisis level by next year, he added. For POSCO, enhancing the stability of raw materials supply will be very significant for future growth, Lee said. POSCO is aggressively seeking to purchase a stake in overseas mines to ensure self supply of iron ore and coal, according to company officials. The steelmaker aims to raise the ratio of self-supply of raw materials from less than 20 percent now to over 50 percent in 2018. Last year, POSCO formed a consortium with Japanese steel makers and trading firms, jointly acquiring a 40 percent stake in the Brazilian iron ore mining company Namisa. "While China has enough mines to stably supply iron ore, Korea doesn't. POSCO should seek M&A opportunities in overseas markets," Woori's Lee said. The nation's No. 2 Hyundai Steel's new blast furnace in Dangjin, which is near completion and expected to operate in April next year, will be the key whether the company will be able to leap forward as a global player, observers said. Hyundai Steel currently produces about 10 million tons of steel a year, while its bigger rival POSCO has an annual output capacity of 35.4 million tons. With the first and second blast in operation from 2011, Hyundai Steel's global ranking in terms of output is likely to jump from 30th to 10th-15th with an annual capacity of 18 million tons, Hyundai Steel president Woo Yu-cheol told reporters earlier. Dongbu Steel is also expected to benefit from production of hot-rolled steel sheets at the firm's new electric arc furnace mill in Dangjin, as the company will be able to replace some of the hot-rolled imports with their own products, according to company officials. The steelmaker aims to produce 300,000 tons of hot-rolled steel sheets by the end of the year, 2.5 million tons in 2010 and 3 million tons in 2011.