Effects of firming raw material market to South Korean economy and steel industry

Effects of firming raw material market to South Korean economy and steel industry

South Korean economy where local resources are limited is under heavy pressure by surging oil and raw material prices day after day. Prices of raw materials such as lead, copper, coal show an irrepressible upward trend since the end of last year as well as oil prices. This upward trend derives mainly from supply shortage worldwide. In light of current circumstances, there are concerns within the country regarding exports and domestic consumption that may be negatively affected subsequently due to the inflationary pressure caused by increase in import prices. These concerns depend on the belief that the economic recovery which has been observed for a long time can only be secured in case exports pick up against slow domestic demand. This unprecented rise in raw material costs is expected to continue for a period of time and become a heavy burden for industrial sectors that are vital for the country. The possibility of a crisis to be experienced in all industrial sectors as a result of a stock depletion of almost every manufacturer towards late March is discussed. Manufacturers' profitability has nearly grounded under such market circumstances despite the rising demand and some mills have already had to suspend their production. Construction sector oriented steel producers express that some manufacturing projects will have to be cancelled in case situation keeps its trend. Prices are continuously going up since the end of last year with the support of strong acceleration through booming construction projects as a result of infrastructure works and rapid growth of domestic demand in China. Furthermore, this price increase caused fluctuations in raw material prices and rise in product prices of electronics, steel and automotive sectors which are pretty volatile. According to statistics, China's iron ore import reached to 145 million mts last year. Taking into consideration that total demand for iron ore amounts to approximately 407 million tons, China has covered 36% of its requirement through imports. The iron ore reserve in China is reportedly around 15 billion tons. South Korean steel producers had to reflect the financial burden to main industries of the country such as automotive, ship and building sectors and hence effected consecutive price hikes in line with aforecited rises in costs. Sector analysts are worried that this supply shortage problem will last a bit longer as US, India and China are working on proposals for the restrictions in raw material exports. On top of these adverse circumstances in the iron steel industry, South Korea which is the fourth biggest oil consumer is also negatively affected by oil prices which are ruling high. In order to overcome this depressing situation Korean government is reportedly in preparation to reduce import duty and quotas applied on basic raw materials. Besides, under the framework of these measures, Korean producer POSCO is requested to increase its supply to the domestic market.