A special act to strengthen the competitiveness of the steel industry and transition to carbon neutrality to support domestic steelmakers struggling with carbon emission regulations and the oversupply of Chinese steel, the so-called "K-steel act," has taken effect. But critics say its effectiveness is limited because, unlike Europe and Japan, which are expanding support to protect their own industries, the law does not include the payment of subsidies for low-carbon transition or cuts in industrial electricity rates.
According to the steel industry on the 22nd, the K-steel act, which passed the National Assembly's plenary session in Nov. last year, took effect on the 17th. The law is a special act for the steel industry established 40 years after the Steel Industry Promotion Act was abolished in 1986.
The K-steel act includes measures such as introducing a low-carbon steel certification system, designating low-carbon steel special zones, and applying exceptions to the Fair Trade Act to coordinate production volumes among corporations. It also includes nurturing processing specialists that use recycled steel resources such as steel scrap from end-of-life vehicles and industrial sites.
◇ Steel industry reeling from EU carbon rules and tariff imposition
The K-steel act was enacted to help the domestic steel industry, which remains in a slump due to the oversupply of low-priced Chinese steel, declining demand in the global steel market, and protectionism and steel import controls in various countries.
According to the POSCO Research Institute, global steel production last year was 2.45 billion tons, exceeding total demand by about 36%. Of this, steel produced by China reached 1.14 billion tons, or 47% of the total.
Europe's tightening of restrictions on steel imports is also a headwind for the domestic steel industry. According to the Korea Iron & Steel Association, from January to May this year, the European Union accounted for 13.83% of Korea's total steel export destinations, the second largest after the United States.
As the European Union has enforced the carbon border adjustment mechanism (CBAM) since January, strengthening regulations on corporations and products with carbon emissions, concerns are growing about the weakening competitiveness of Korea's steel industry. CBAM is a system that imposes a tax based on the amount of carbon emitted during the production process of products imported from non-EU countries.
The European Union is also raising tariff barriers on steel. Starting July 1, it will reduce the tariff rate quota (TRQ) volume that allows duty-free imports of steel products from Korea and other countries from 3,382 tons to 1,835 tons, and apply a 50% tariff rate to volumes exceeding the TRQ.
◇ "Let's do it like Japan and Europe too"... The keys to steel support are subsidies and easing electricity costs
The industry expects that the enforcement of the K-steel act will help steelmakers shift to low-carbon technologies and strengthen their competitiveness. But there are still regrets compared with countries such as Europe and Japan, which are aggressively striving to revive their steel sectors by paying subsidies or reducing electricity cost burdens.
Through the "Action plan for affordable energy," implemented since Feb. last year, the European Union cut industrial electricity rates and reduced price burdens for power-intensive sectors such as steel.
According to the steel trade media SteelOrbis, Germany introduced a new industrial electricity rate system this year, discounting rates by up to 50% for power-intensive sectors such as steel and chemicals and capping the unit price at 5 cents per kilowatt-hour (kWh) (about 75 won). The system is scheduled to run through the end of 2028, and the German government is pushing to extend the sunset to after 2030.
Europe is also providing funding to support the shift to low-carbon steel. From 2022 to Feb. last year, the European Commission supported about €9 billion (about 16 trillion won) in subsidies for member states' steel decarbonization projects. German steelmaker Salzgitter received €1 billion (1.757 trillion won) in subsidies for building an electric arc furnace targeted to start operating this year.
Japan, through the "green transformation (GX)" policy implemented since last year, decided to support government funding of 20 trillion yen (about 189 trillion won) and private investment of 150 trillion yen (about 1,417.89 trillion won) over the next 10 years to transition to low-carbon steel. The GX Promotion Agency said it would provide up to 180 billion yen (about 1.7013 trillion won) in debt guarantees for decarbonization investment by Japanese steel corporation JFE Steel.
Industry officials say that to compete in the global market, measures such as cutting industrial electricity rates are urgent. Domestic industrial electricity rates were 105.5 won per kWh in the fourth quarter of 2021, but rose to 185.5 won in the fourth quarter of 2024, up about 75% in three years. That is roughly 2.5 times the electricity rates paid by German steelmakers receiving government support.
A steel industry official said, "It may be unrealistic to craft policies or bills that take care of only the steel industry alone, but from the standpoint of protecting key national strategic industries, bold cuts in industrial electricity rates or fiscal support measures are necessary."