Expectations that Korea's steel industry will bottom out and rebound this year are wavering. That's because China's steel inventories are rising sharply, increasing the likelihood of a resurgence of "push-out exports." It is seen as the result of tariffs imposed by the United States, the European Union (EU) and South America, along with a deepening slump in domestic demand.
According to the China Iron and Steel Association (CISA) and steel-focused foreign media on the 9th, as of the 20th of last month, inventories of China's five major steel products (hot-rolled, cold-rolled, heavy plate, wire rod, rebar) totaled 9.53 million tons (t). That is a sharp 22% increase from the 10th (7.81 million tons).
Inventories of finished goods held by large steelmakers that are members of the China Iron and Steel Association also stand at 15.11 million tons. Local assessments say the inventory level is excessive.
The biggest reason steel inventories are piling up in China is weak domestic demand caused by the real estate downturn. Rebar accounts for about 4.14 million tons, or 43% of total inventories. The 10-day inventory growth rate was 27.5%, the highest among the five major steel products.
For the past 30 years, the Chinese government has used real estate development and infrastructure investment as a springboard for high growth. As a result, construction real estate accounts for 25% of China's gross domestic product (GDP).
However, starting 3 to 4 years ago, real estate corporations such as Country Garden and Wanda fell into default, and Vanke, the largest construction company, also faced a liquidity crisis. The number of unsold and vacant dwellings in China is estimated at about 80 million units.
International credit rating agency Standard & Poor's (S&P) said, "This year, new dwelling sales in China will decrease by up to 14% from last year," adding, "Despite various stimulus measures by the Chinese government, oversupply and sluggish demand are intersecting, delaying market recovery."
The impact of global tariffs targeting China is also a cause of the inventory surge. The United States maintains an effective tariff averaging 24% to 37% on Chinese steel. Europe has fully implemented the carbon border adjustment mechanism (CBAM) starting this year, imposing a "carbon expense" on most Chinese steel. According to the International Energy Agency (IEA), China's carbon dioxide emissions totaled 11,310 megatons (Mt) as of 2023, the highest in the world.
South American countries such as Brazil and Chile also began imposing emergency tariffs of around 25% early this year to block the influx of low-priced Chinese steel.
The Chinese government ordered production cuts in the steel industry, but they are not working. Steelmakers that have not yet switched to electric arc furnaces account for 80% of the total, and halting production entails significant expense. In addition, local governments, to maintain tax revenue, are indirectly pressuring steel companies to keep production or are providing subsidies.
In response, an executive of the China Iron and Steel Association publicly criticized that "local governments are obstructing the suspension of operations at insolvent steel companies to achieve their GDP and tax revenue targets."
In Korea's steel industry, there are concerns that China's "push-out exports" may increase between March and April. This could have a negative impact on steelmakers that had expected a rebound in performance this year. The World Steel Association forecast that global steel demand will grow by 1.3% to 1.8% this year.
Meanwhile, POSCO and Hyundai Steel, Korea's two major steelmakers, are seeking a way forward through business diversification and advancement. POSCO plans to expand steel exports while increasing its lithium materials supply chain. Hyundai Steel decided to mass-produce low-carbon steel sheets that cut carbon emissions by more than 20% and supply them first to Hyundai Motor and Kia electric vehicles.
An official at a large steelmaker said, "In the case of heavy plate and hot-rolled products, trade remedies will likely limit the inflow of Chinese goods," but added, "However, if unfair imports of other products expand, it will likely hinder stabilization of domestic supply and demand."