With the government announcing a plan to apply industrial electricity rates differently by region, the steel industry expects electricity costs to fall significantly. Major steelmakers POSCO and Hyundai Steel have key production facilities in the southern region, where rate cuts are the largest by area (up to 10%), and the central region (up to 8%).
According to the steel industry on the 27th, POSCO and Hyundai Steel each spend more than 1 trillion won a year on electricity. Industry watchers expect POSCO, which has steelworks in Pohang, North Gyeongsang, and Gwangyang, South Jeolla, to benefit more from the regional differential reductions in electricity rates due to its locations. On the other hand, some say Hyundai Steel, with a high share of electric arc furnace production, will feel a greater effect in terms of reducing manufacturing costs from lower electricity rates.
The design plan for the "industrial regional electricity rate system" released by the Ministry of Climate, Energy and Environment and the Korea Electric Power Corporation on the 26th divides the country into a total of 11 regions, including four wide areas (northern capital area, southern capital area, central region, southern region) that reflect the power system structure. The key is to add a "regional adjustment charge" item to the current rate structure (basic charge, energy charge, climate and environment charge, fuel cost adjustment charge) to apply different discounts by region.
The government first disclosed the four wide areas and, considering balanced growth going forward, will classify four zones and finalize the division into 11 regions to apply differentiated industrial electricity rates.
Among the four wide areas, the southern region, which includes Yeongnam and Honam, has the highest reduction rate at 7%–10%. The central region, including Gangwon and Chungcheong, is 5.5%–8%, and Incheon and the northern capital area are 3%–5.5%.
Based on last year's average industrial power selling price of 181.90 won per kilowatt-hour (kWh), the southern region will see cuts of up to 18 won, the central region up to 15 won, and the northern capital area up to 10 won. The southern capital area, including Yongin, will be adjusted to be the same as now or within about 1 won, effectively no different from the current level.
Industrial electricity rates have risen more than 70% over the past five years. According to the Electric Power Statistics Information System, the average industrial power selling price per kWh rose about 72% from 105.48 won in 2021 to 181.90 won in 2025. A POSCO official said, "Industrial electricity rates have nearly doubled over five years, dealing a big hit to costs."
The steel industry expects that if the regional differential plan for industrial electricity rates is implemented, profitability can improve as manufacturing costs fall. Steelmaking has a high cost of goods sold due to heavy spending on materials and supplies such as iron ore and steel scrap and on energy such as electricity. Last year, the cost of goods sold ratio at POSCO and Hyundai Steel reached 92%–93%. Given the industry's high electricity consumption, lower rates translate directly into cost savings.
By steelmaker, the scale of electricity expense savings is expected to vary not only by regional differential cuts but also by factors such as the share of electric arc furnace production, electricity use by plant, the share of external power purchases, and self-generation volumes. Because an electric arc furnace melts steel scrap using electricity, it consumes more power than a blast furnace. According to the International Energy Agency (IEA), electricity use in the electric arc furnace steelmaking process averages about 425 kWh per ton of steel.
Hyundai Steel has a relatively large share of electric arc furnace capacity, so it relies heavily on external power purchases. It is therefore more affected by electricity rate fluctuations. Hyundai Steel's Dangjin steelworks in South Chungcheong (central region) operates both blast and electric arc furnaces, while its Incheon plant (northern capital area) and Pohang plant (southern region) are run mainly with electric arc furnaces. Last year, in Hyundai Steel's crude steel output, blast furnaces accounted for 69% and electric arc furnaces 31%.
Cho Hong-jong, a professor of economics at Dankook University, said, "Electricity purchase expense accounts for 10%–20% of the cost of steel products made with electric arc furnaces, and at Hyundai Steel, which has a production system centered on electric arc furnaces, the share of electricity purchase expense in costs has exceeded 10%."
Hyundai Steel's annual electricity purchase expense is around 1 trillion won. Hana Securities estimated that, considering the extent of regional industrial electricity rate cuts and electric arc furnace capacity by plant, Hyundai Steel could save about 140 billion won a year in electricity bills based on last year's power use (9.7 billion kWh).
A Hyundai Steel official said, "Dangjin, where the largest electric arc furnace is located, will likely get the central region discount, but it is hard to predict the impact because detailed guidelines have not yet been issued on how rates will apply by plant," adding, "Even so, lower electricity rates will improve costs by the amount reduced, and increased operating profit will create more room for research and development (R&D) investment."
POSCO could see electricity rate cuts of up to 10% as both Pohang and Gwangyang steelworks are in the southern region. POSCO's domestic crude steel output last year was 34,537,000 tons, about twice Hyundai Steel's. However, POSCO's annual electricity expense is slightly higher than Hyundai Steel's at about 1.2 trillion won.
POSCO still has an overwhelmingly high share of crude steel production using blast furnaces. Last year, electric arc furnaces accounted for only 3.3% of POSCO's crude steel output. In addition, it has a high share of self-generation, producing electricity directly by utilizing byproduct gases generated in blast furnace processes.
Last year, self-generation accounted for 88% of electricity use in POSCO's steel business, with external purchases at about 12%. Hana Securities expected that, based on last year's electricity use, POSCO's steel business could save up to 175.2 billion won a year in expenses from the electricity rate cuts.
Choi Yong-hyun, an analyst at KB Securities, said, "To move to low-carbon steel, we need to use more electric arc furnaces, and in that sense the government's decision to lower industrial electricity rates is indeed a benefit," but added, "What is more urgent for the steel industry now is to block cheap imported steel through anti-dumping tariffs and revive domestic demand."