Hyundai Steel announced on the 27th that it will shut down its steel rebar factory in Incheon for a month in April. "This decision is not just a regular remuneration, but a production cut due to worsening market conditions," a Hyundai Steel official said. "The top priority is to balance supply and demand by reducing production."
Recently, in the rebar market, price declines and low-cost bleeding competition continue due to lack of demand despite shipments and production adjustments by major steelmakers. According to the steel industry, domestic demand for steel bars fell to 7.98 million tons last year, the lowest level since 1998 when the International Monetary Fund (IMF) was in financial crisis. The distribution price of rebar also plunged to 600,000 won, below the marginal cost as of March this year, and a number of companies are stopping shipments.
Hyundai Steel plans to stabilize market prices by shutting down its Incheon plant. Hyundai Steel produces 1.5 million tons of steel bars a year at its Incheon plant.
Hyundai Steel has recently entered an emergency management system amid a global economic downturn, oversupply from China and slowing domestic demand. Extreme cost reduction measures are being implemented, such as a 20% cut in executive salaries. All employees over the age of 50 (born in 1975) are also receiving voluntary retirement.
Steel demand plunges amid construction slump
I don't think 50% of the plant will operate this year
Dongkuk Steel is only operated at night
Korea Steel Suspends Shipment for 2 Months in a row
According to the Korea Steel Association, domestic demand for steel bars (production + import-export) stood at 7.98 million tons last year, down about 20 percent from 9.95 million tons last year.
This is the lowest in 27 years since 1998 (7.74 million tons) when the IMF financial crisis occurred. Demand for rebar, which surged to 11.3 million tons in 2021 on the back of economic stimulus measures during the COVID-19 pandemic, plunged for the third consecutive year amid a slump in the construction industry.
The total annual production capacity of steel rods in the domestic steel industry is about 13 million tons. This means that the average utilization rate was only about 60% because demand was below 8 million tons last year.
The steel industry predicts that demand for reinforcing bars will fall to 6 million tons this year, down further from last year, but the plant utilization rate will fall to less than 50 percent at this rate.
The steel industry has already started controlling production, including production cuts, since last year, but prices are falling due to the larger drop in demand. Dongkuk Steel, the second-largest producer after Hyundai Steel, has been operating its steel rebar factory only at night since July last year.
Dongkuk Steel has suspended shipments for a total of 10 days this month, and is considering suspending shipments in April. Korea Steel Co., the third largest steelmaker in the industry, is also responding with ultra-strong water, suspending shipments this month following last month. The price of rebar distributed in the market (based on SD400, a general-purpose product, 10mm) was 676,000 won per ton in March, down about 12% from the previous year (768,000 won). Compared to 2022 (1.16 million won), when the construction industry was good, the price plunged by half.
"March is originally a high season for construction, but it is a serious situation that the price of rebar is below the marginal cost, which is in the mid-700,000 won range," an official at Dongguk Steel said. The more we sell, the more we have no choice but to stop shipping the loss," he said.
Considering the recent construction market, the recession in the rebar industry is expected to continue this year. An official from the steel industry said, "The recent recession is a construction industry problem, so we have no choice but to respond with production cuts and cost cuts," adding, "We will have to wait and see how much Hyundai Steel's shutdown will affect price stabilization."
[Reporter Jeong Ji Sung / Reporter Son Dong Woo]
