Steel industry is confidently riding an upward production curve

The Pohang integrated steel mill is a symbol of Korea's growing economic confidence. In mid-February, another 3 million tons was added to the nation's steelmaking capacity when the Pohang Iron and Steel Company (POSCO) celebrated completion of its fourth phase expansion.

Korea's overall output will now exceed 12 million tons, with POSCO contributing 8.5 million tons.

"But really, there is much room for expansion," insists Kim Chulsu, director general of the Ministry of Commerce and Industry's Trade Promotion Bureau.

The government, in fact, had planned to build a second integrated mill at Asan Bay to be operational in 1981. But lack of funds forced suspension of the project and it's not clear when work will start.

"We certainly need another mill," says Mr. Kim. "Our self-sufficiency rate is currently 84 percent, so we are still importing more of our needs than we would like."

Even with Asean Bay operational, Korea would still face growing supply problems from the domestic industry, which, apart from the government-run POSCO, is typified by small, outdated operations and a lack of rolling facilities.

With domestic demand expected to climb fast, current projections are that, with the Asan mill included, Korea at best can hope for a self-sufficiency rate of about 69 percent in 10 years time.

The Korean steel industry suffered from last year's domestic recession. Only the steel pipe sector remained untouched by the slump in demand which swept across construction, automobile, household electronic appliance, machinery, and steel processing industries.

Sales of steel products in 1980 totaled 8,990,000 tons, a slight increase of 0.7 percent over the previous year. But domestic supplies reached only 5,680, 000 tons, a decline of 12.5 percent.

The industry's salvation was a growth rate in exports that Kim Chulsu describes as "phenomenal."

In quantity, overseas shipments were up 36.2 percent at 3,310,000 tons, while the value rose 45.2 percent to $1,939 million.

"We did especially well to Japan last year," explains the trade promotion official."Now that might be a shock to some people. But really, Japan is a very important market for us, now second only to the United States."

Preliminary figures show that Japan-bound shipments last year topped the 300, 000-ton level (compared with a meager 22,762 tons as recently as 1977). The United States received approximately 470,000 tons. "But there is demand all over the world for Korean steel these days," reports the enthusiastic Mr. Kim. "Southeast Asia, the Middle East are growing fast . . . why last year we simply didn't have enough steel products to meet the demand."

Korean steel has managed to maintain its price competitiveness on world markets despite the heavy inroads made by wage-related inflation in the past few years.

The facilities at Pohang are much newer than even most of the ultraefficient Japanese mills, while labor costs remain significantly lower. According to Mr. Kim: "POSCO is getting its raw materials like iron ore from Australia, Brazil, and India on exactly the same terms as the Japanese, but can turn out a ton of steel at a price that makes us extremely competitive in Japan."

There is quiet confidence in the steel industry that 1981 is going to be a good year, under the influence of a business recovery at home abroad.

Kim Hak Ki, executive vice-president of the Korea Iron and Steel Association, estimates this year's sales of steel products will increase by about 12 percent over last year.

The current breakdown of domestic usage is: construction 54.2 percent, steel processing 22.9 percent, general machinery 8.3 percent, shipbuilding 6.2 percent , electric machinery 4.4 percent, and automobiles 4 percent.

Mr. Kim's prediction is based on an expectation of a rapid increase in demand due to the government's early commencement of housing and other public works projects, as well as the swollen order books of the shipbuilding industry.

Abroad, Korea's continued ability to win billions of dollars in construction contracts from Middle East countries will continue to generate a growing demand for Korean steel. There is considerable expectation in Seoul of benefits from the rehabilitation projects that Iran and Iraq hopefully will undertake when their border war is concluded.

There is two major areas of concern for Korean steelmakers: vulnerability to the American trigger-price mechanism, as well as moves in Europe to drastically pare steel production.

The European Community will cut back production by 50 percent, and under a burden-sharing formula want imports cut back by the same amount.

According to Kim Chulsu: "If you're shipping millions of tons like Japan, maybe it's not so bad. But we are a new entrant to the European market and a 50 percent cut in our already small market share will really hurt."

Still, he admits that overall the steel industry really can be optimistic about the future.