South Korea: Supply pressure, China export policy key concerns for pipe producers

South Korean steel pipe manufacturers are facing difficulty in securing key raw materials for the steel pipe industry amid concerns about a possible reduction in the sourcing of Chinese hot-rolled (HR) steel and decline in production of domestic hot rolling companies.

A decrease in imports seems inevitable as domestic steel pipe companies are worried about securing raw materials from China due to the uncertainty of the Chinese government’s export policy.

It is necessary to focus on securing raw materials such as domestic hot rolled steel and hot-dip galvanised steel sheets for the time being, but there are concerns that this may become difficult in the near future.

Supply concerns

POSCO’s Gwangyang No. 4 blast furnace renovation and consequent decrease in crude steel and hot-rolled production and the possibility of a reduction in external sales because of maintaining the proportion of self-consumption, along with a decrease in exports of HR products in the first quarter due to facility troubles of Japanese blast furnace steel companies have complicated the situation for Korean companies.

As demand is not recovering, the pressure on steel pipe manufacturers that restricted raw material purchases due to high prices is only increasing. The prices of HR products from China has recently dropped to around $800/tonne (t), although the prices vary across companies.

Concerns about supply shortage and high prices of iron ore and coking coal have greatly lowered the possibility of a decline in pipe prices. “Even if supply decreases, efforts to recover profitability may suffer if demand is greatly reduced,” a pipe producer said.

It is expected that prices will recover to a certain level because of concerns over supply and rising raw material prices. Last year, strong demand and supply shortage caused price hikes.

Owing to high raw material prices and the continuous competition for orders between structural pipe producers, product prices have been falling since the second half of last year. Consequently, the burden of loss has increased. It is expected that improvement in demand will plug the deficit in producers’ margins.

This insight has been published as part of an article exchange agreement between SteelMint and SteelDaily.