South Korea: Steel pipe industry expected to witness marginal growth in CY’22

• Construction investment may rise by 2.5%
• Export demand outlook bleak on US quota issue
• Domestic supplies to remain tight
• Producers’ margins could contract further

Demand for steel pipes in South Korea, the world’s sixth-largest steel producer, has stagnated since 2017. Despite supply shortage amid rise in raw material prices, the major companies are engaged in fierce competition for orders. The steel pipe industry is vulnerable to cost in the era of energy transition.

Slow recovery in demand
Construction investment, which recorded negative growth in 2021, is expected to increase by around 2.5% in 2022.

In 2022, the government’s social overhead capital (SOC) budget, or infrastructure-building budget, is expected to increase. Automobile production at home and abroad is also expected to increase; oil prices will continue to rise and the expansion of natural gas use is expected to eventually lead to an increase in steel pipe demand.

The industry is expecting a slight increase in both production and sales of pipes in CY’22 compared to CY’21. Both domestic demand and exports are expected to increase year-on-year, but the extent is not expected to be large. This is because exports to the US are still limited due to the quota effect, and competition for orders outside the US is expected to be tough.

Although domestic demand may improve slightly, it is not expected to increase significantly compared to pre-COVID years. Producers’ margins are likely to remain under pressure due to facility expansion by the domestic companies and competition for orders.

Gwangyang renovation
Prices of hot-rolled and hot-dip galvanised steel may not decrease significantly. In terms of demand, it is difficult to expect a surge. The prices of iron ore and coking coal are lower than their 2021 peaks but still quite high. In addition, the possibility of China imposing an export tax is low.

Domestic production and supply are expected to be impacted due to POSCO’s renovation of the Gwangyang works. Supply from Hyundai Steel will decrease as supply to Hyundai and Kia Motors increases. The price of imported raw materials will fall, but there is a possibility that the price of domestic products may not, due to supply issues.

Domestic pipe sales over the past 10 years have remained at the level of 3.2-3.3 mn t, except for 2016. Sales decreased year-on-year for two consecutive years after recording 3.33 mn t in 2019.

It is difficult to expect sales to expand unless a company or product creates new domestic and foreign demand in the construction and energy sectors.