Korean steel makers have been increasing domestic supply and cutting down on exports after the nation faced a shortage of the commodity this year.
Steel imports last year hit record-high levels of 15.63 million metric tons, prompting the government to open its raw material reserves and monitor steel exports.
But Seoul was caught unprepared when a weak dollar and rises in international oil prices led distributors and exporters to withhold supplies as they bet on higher steel prices in the future, said a senior official.
Domestic manufacturers have been facing swelling raw material prices caused by growing global demand, especially from China, which soaked up 36 percent of the world’s steel supply last year.
Furthermore critics have said that the ministry did not stockpile enough steel to meet the nation’s demands. The ministry hoarded some 34 million metric tons of steel this year for the country’s needs based on think tank projections, said the senior official.
However, the administration’s reserve target widely misses the mark, as Korea consumes 23 million metric tons per year in scrap iron alone.
By adding other steel products needs, the total demand jumps to over 40 million tons, said the Korea Iron & Steel Association.
The shortages led local steel makers, such as POSCO, INI Steel and Dongkuk Steel Mill, to increase domestic deliveries and temporarily halt exports.
POSCO, the largest steel manufacturer in the nation, said last month it would supply domestic users an additional 290,000 tons of steel plates and 65,000 metric tons of wire rods and pig iron, while INI agreed to increase production of re-bars and steel H-sections, commonly used in construction, by 110,000 tons.
The government denies having applied any pressure in the steel sector, but a spokesman for one of the steel makers said that it would have been impossible for domestic manufacturers to ignore the situation.
However, analysts note that the steel shortage will not last, given that it stems from what is seen as a temporary glitch in the supply-demand curve.
“Capitalizing on a likely price increase is a natural process, and we don’t believe the current situation to last longer than this month as demand peaks in March before falling,” said Park Jun-hyung, a researcher at Hyundai Securities.
Steel makers are also unlikely to suffer any real damages, he added, as the additional output accounts for an insignificant portion of their overall output.
“A couple thousand tons taken from the export pile to add to local demand is nothing,” he said. The Korea Herald