South Korea’s steel consumption in the second half (H2) of the current year is likely to contract compared to H1 because of economic slowdown and the impact of inflation. However, the annual steel consumption is likely to increase by 1-2% to 55-56 million tonnes (mnt).
Export volumes fell 5% to 13 mnt in the first half of the year, the lowest since 2010. As per Korea’s Iron and Steel Association, the reason behind the drop in exports is the decline in exports to China amid the slowdown in the Chinese economy. Furthermore, in H2, exports are expected to fall over the global economic slowdown.
Production volumes in H1 fell 2% y-o-y due to major repairs of the blast furnaces, sluggish exports due to inactive global demand as well as slowdown in recovery of domestic demand. In H2, production is expected to remain at similar levels as H1.
In H1, imports rose 6% compared to the year-ago period. The largest importer – China – had imposed lockdowns amid Covid outbreak besides consistent production cuts as a result of which Chinese imports declined 20%. However, overall imports increased due to the influx of Japanese products amid a low yen.
Revenues are expected to decline in the second half, while the possibility of influx of low-priced imported goods cannot be ruled out, as per the association.
During the first half, demand was mainly driven by the increase in demand for heavy plates from the shipbuilding sector. Heavy plate sales jumped 18% in H1 and the uptrend is likely to continue in H2. However, demand from other sectors will remain sluggish.
In addition, construction orders increased by 2% in the first half of the year, but the start of the construction work was delayed due to rising material prices, which did not lead to steel consumption. The outlook for the second half of the year is not that bright. According to the Construction Industry Research Institute, construction orders are likely to drop by more than 3% in H2 along with a lower long steel demand.
Meanwhile, automobile production is also disturbed due to supply chain disruptions. Both domestic demand and exports are sluggish. However, H2 is expected to improve compared to H1 due to a base effect, delayed demand and improved parts supply conditions. Steel materials for automobiles, such as galvanized steel sheets, are also expected to show signs of recovery in demand. However, economic slowdown in the second half will co-exist.
Due to spiralling inflation as well as contracting economic activity, second half of the year is expected to witness a slowdown. During H1, steel companies have performed well due to high metal prices, but, profitability is expected to decline in H2.
“There is also a forecast that the market, which was sluggish in the first half of the year, will improve as government will supply to housing and improve the supply chain situation. Also, as China implements a large-scale economic sales plan in the second half, demand is expected to improve,” the association remarked in a statement.
The association further explained that the forecast for the second half was made before the recent floods, so the impact of that is not accounted for.
Note: This article has been written in accordance with an article exchange agreement between SteelDaily and SteelMint.
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