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South Korea Metals Report Q3 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: July 2009 Product Code: R302-7068 Description The South Korean steel industry was showing signs of stabilisation in Q209 with some segments,particularly rebar, reporting growth in output as inventories diminished, although flats remaineddepressed due to the decline in the automotive industry. Forecasts in BMI’s latest South Korea MetalsReport suggest it will be some years before crude steel production capacity utilisation exceeds 90%, withthe sector struggling to compete with Chinese producers as well as the lingering effects of the recessionon orders for the shipbuilding industry.In the first four months of 2009, crude steel output was down 18.6% y-o-y to 14.62mn tonnes. There weresigns that the steel industry had passed its low-point in February and by April monthly output was at4.09mn tonnes, up 8.5% over March but down 9.5% year-on-year (y-o-y). There were further signs ofrecovery in May when South Korea’s billet imports were estimated at 60,000 tonnes, up slightly from59,000 tonnes in April but still down on the 62,000 tonnes imported in March. While demand continuedto be weak, it had stabilised at around 60,000 tonnes per month, assisted by a stable exchange rate and afalling inventory. South Korea’s rebar inventory dropped sharply in Q209, suggesting that the longs market may bereviving. The declines are related to an increase in exports as stimulus projects in Asian countries increasedemand for steel from construction companies. In April 2009, seven rebar producers in South Korea sold820,000 tonnes of rebar, surpassing 800,000 tonnes for the first time since July 2008. South Koreareported a strong rise in exports of H section with Hysco and Dongkuk Steel selling 195,000 tonnes - anincrease of 10.8% compared with March. Meanwhile, shipbuilders are seeking to diversify markets to boost output to offset the effects of recessionin their main export markets. New contracts are dedicated to energy-related projects and crude shipping. Daewoo Shipbuilding and Marine Engineering has signed an agreement with the government of Omanto develop an industrial area there, which if finalised with be worth around US$12bn. The four largestSouth Korean shippers are also seeking orders for vessels and offshore facilities worth more thanUS$25bn from Brazil’s Petroleo Brasileiro SA. Samsung Heavy and Daewoo Shipbuilding are in thebest position to win orders for offshore facilities such as drill ships and semi-submersible drilling rigs, butHyundai Heavy and STX Shipbuilding may also be in the running. The Korea Iron and Steel Association (KISA) has said that capacity will increase by 6.7% y-o-y to64.2mn tonnes per annum (tpa) in 2009 from 60.14mn tpa in 2009. Hyundai Steel and Dongkuk Steelare scheduled to commission a new heavy plate mill of 1.5mn tpa capacity in H209. Electric arc furnace(EAF) capacity will rise 11.9% to 30.39mn tpa in 2009, while blast furnace capacity will increase 2.4% yo-t to 33.77mn tpa. A total investment outlay of KRW10,000bn is planned over 2009, of whichKRW7,300bn will come from POSCO (up by almost 50% y-o-y). KISA expects capacity to rise to up to70mn tpa in 2010, assisted by POSCO’s planned new facilities at its Kwangyang works with heavy plateproduction of 1.5-2.0mn tpa. Output is set to be stimulated from 2010 with the development of theDangjin integrated steel complex with annual steel production capacity of 8mn tonnes, including 6.5mntpa of hot-rolled band and 1.5mn tpa of plate. Completion of the first blast furnace is due in 2010 with asecond due in 2011. The key question is how much of this additional capacity will be utilised. BMI’s crude steel productionforecast of 47.69mn tonnes in 2009 would imply a utilisation rate of just over 74%. We forecast output at51.84mn tonnes in 2010, with output growing by 8.7% as the recovery picks up pace. However, this willstill mean capacity utilisation sustained at around 74%, well down on the 89% utilisation rate estimated in2008. POSCO CEO Chung Joon-Yang voiced his concern that the crisis in the steel industry could lastbetween two to three years, leading to a 30% reduction in output. It will therefore be some years beforethe South Korean steel industry approaches its full potential, with BMI’s forecasts showing that 2008output levels will not be exceeded until 2011. Growth will be limited by the maturing of the domesticsteel market and the rapid growth in China’s industrial capacity, which has limited steel and steel productexport growth, although there is still room for growth. Table of Contents
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