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South Korea Metals Report Q2 2011


South Korea Metals Report Q2 2011

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Additional Information
Price $530.00
Meta Description No
Publisher Business Monitor International
Date of Report Apr 8, 2011
Quick Overview
The Korean steel industry is set for a surge in output in 2011 helped by new capacity, continued growth in export-oriented sectors and the effects of the Japanese earthquake on regional steel supply and demand. However, there are concerns that competitiveness is being eroded by rising raw material costs and the appreciation of the won.
In 2010, South Korea’s crude steel output was up 19.4% year-on-year (y-o-y) to 58.03mn tonnes. This was far lower than the 65.35mn tonnes forecast by the Korea Iron and Steel Association (KOSA) and marginally less than BMI’s estimate of 58.80mn tonnes. Almost all the rise in output was produced by converters, which accounted for over 60% of crude output with the remainder producer by EAFs. Output growth was assisted by a massive increase in crude steel production capacity with Hyundai Steel starting two new furnaces at Dangjin in April and November, each with a capacity of 4mn tpa, raising capacity by 25%. The recovery was aided by a rise of around 17% in total steel exports to 22.19mn tonnes. Exports were led by flat products, which rose 17.4% y-o-y to 17.53mn tonnes. However, growth was partly offset by a 2.6% decline in long exports to 3.21mn tonnes. At the same time, South Korea imported 41.25mn tonnes and 13.48mn tonnes of long products and flat products respectively in 2010, increasing by 46.5% and 19.1% y-o-y.
While 2010 marked a slower recovery in steel output than many had hoped, BMI foresees a surge in Korean production in 2011 due to increased capacity, continued growth in the global economy and the effects of the Japanese earthquake on the regional steel market. Growth will be led by a revival in the shipbuilding industry as well as solid growth in car manufacturing. BMI forecasts 23.8% growth in crude steel output to a record high of nearly 72mn tonnes in 2011, assisted by recent capacity expansion and rising demand in every steel consuming sector, apart from construction. Domestic consumption of finished steel products is forecast at 55.12mn tonnes, with a further 26.64mn tonnes of semi-finished and finished steel exported. Exports will be encouraged not just by the effects of the Japanese earthquake, but growth in demand from India and the expansion of the supply chains of Korean steelmakers such as POSCO and Hyundai Steel. BMI also forecasts a 12.6% decline in imports to 23.75mn tonnes due largely to an increase in domestic supply. Hot-rolled output is also set to rise 12.7% to 66.72mn tonnes. Growth is supported by high levels of investment by Korean steelmakers both at home and abroad.
Korean steelmakers’ investment will rise 3.7% y-o-y to KRW8.4trn in 2011 as Hyundai Steel Co plans a third furnace and Dongkuk Steel Mill Co builds a mill in Brazil. POSCO, the world's third biggest steelmaker, plans the biggest spending among companies (of KRW5.4trn), although much of that spending will be on foreign operations.
BMI believes Korean steelmakers are best placed to take advantage of the Japanese reconstruction efforts over the next two to three years, which will create a gap in the regional market, particularly for high end products. There are, however, some downside risks. With around 40% of South Korea’s crude steelmaking capacity in electric arc furnaces (EAFs), compared with an average of less than 20% for Asia and 28% globally, the country’s steel industry is vulnerable to a decline in scrap supplies. Scrap feedstock may decline in availability and therefore rise in price due to Japan’s infrastructural damage and potential radioactive contamination of Japanese scrap. Japan is the world’s second biggest scrap exporter, typically supplying 7.5-9.5mn tonnes per annum (tpa) of scrap to the world market, while South Korea typically imports 7-8mn tpa of scrap. As such, Korean EAFs may see margins squeezed. Another risk is the expected appreciation of the won, with the value of the won against the US dollar. Rising interest rates in South Korea and efforts to stabilise the won could shave off the currency’s competitiveness. This will come at a time of rising raw material prices both for scrap and ore as well as coking coal, which will put pressure on margins throughout the supply chain.
Table of Contents
Executive Summary ........................................................................................................................................ 5
SWOT Analysis ................................................................................................................................................ 7
South Korea Political SWOT ................................................................................................................................................................................ 7
South Korea Economic SWOT .............................................................................................................................................................................. 8
South Korea Business Environment SWOT ........................................................................................................................................................... 9
Global Market Overview................................................................................................................................ 10
Steel To Average US$580/Tonne In 2011 ........................................................................................................................................................... 10
Table: BMI’s Steel Forecasts .............................................................................................................................................................................. 10
Table: Steel Prices (US$m/t) ............................................................................................................................................................................... 11
Commodities Forecast .................................................................................................................................. 15
Metals Update .......................................................................................................................................................................................................... 15
Aluminium........................................................................................................................................................................................................... 15
Copper ................................................................................................................................................................................................................ 15
Lead .................................................................................................................................................................................................................... 16
Nickel .................................................................................................................................................................................................................. 17
Tin....................................................................................................................................................................................................................... 18
Zinc ..................................................................................................................................................................................................................... 19
Gold .................................................................................................................................................................................................................... 20
Regional Overview ........................................................................................................................................ 22
Table: Top 10 Asian Steel Producers, 2009 ........................................................................................................................................................ 22
Forecast Scenario ......................................................................................................................................... 26
Table: South Korea Metals Industry (‘000 tonnes unless stated), 2008-2015 ...................................................................................................... 28
Macroeconomic Forecasts .................................................................................................................................................................................. 29
Table: South Korea – Economic Activity, 2008-2015 ......................................................................................................................................... 31
Competitive Landscape ................................................................................................................................ 32
Company Profiles .......................................................................................................................................... 35
Pohang Iron and Steel Company (POSCO) ........................................................................................................................................................ 35
Hyundai Steel ...................................................................................................................................................................................................... 37
Global Assumptions, Q211........................................................................................................................... 38
Table: Global Assumptions, 2009-2015 .............................................................................................................................................................. 38
Table: Regional Real GDP Growth, 2010-2013 (% change y-o-y) ...................................................................................................................... 39
Table: Selected Exchange Rates, 2010-2013 (average) ...................................................................................................................................... 39
Developed States ................................................................................................................................................................................................. 40
Table: Developed States’ GDP Growth, 2010-2013 (% change y-o-y) ................................................................................................................ 40
Emerging Markets .............................................................................................................................................................................................. 41
Table: Emerging Market’s GDP Growth, 2010-2013 (% change y-o-y) .............................................................................................................. 42
Consensus Forecasts........................................................................................................................................................................................... 42
Table: Consensus Forecasts, 2011 And 2012 ..................................................................................................................................................... 43
Country Snapshot: South Korea Demographic Data ................................................................................. 44
Section 1: Population ............................................................................................................................................................................................... 44
Table: Demographic Indicators, 2005-2030 ....................................................................................................................................................... 44
Table: Rural/Urban Breakdown, 2005-2030 ...................................................................................................................................................... 45
Section 2: Education and Healthcare ...................................................................................................................................................................... 45
Table: Education, 2002-2005 ............................................................................................................................................................................. 45
Table: Vital Statistics, 2005-2030 ....................................................................................................................................................................... 45
Section 3: Labour Market and Spending Power ....................................................................................................................................................... 46
Table: Employment Indicators, 2001-2006 ......................................................................................................................................................... 46
Table: Consumer Expenditure, 2000-2012 (US$) ............................................................................................................................................... 46
Table: Average Annual Wages, 2000-2012 ......................................................................................................................................................... 47
BMI Methodology .......................................................................................................................................... 48
How We Generate Our Industry Forecasts ......................................................................................................................................................... 48
Cross Checks ...................................................................................................................................................................................................... 48




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