Posted on 15 Jun 2022
Prolonged truck driver strikes in South Korea have strained the nation's logistical network, which can have devastating domino effects on its steel and scrap industry, trade sources said.
On 7 June, unionised cargo truckers staged an indefinite strike in protest over rising fuel prices, and demanded higher freight fares and other support measures. But their demand was not met. And the strike carried on to its eighth day on 14 June as negotiations with local authorities have produced few outcomes.
Trade sources said that the strike could be detrimental to the nation's steel and scrap industry as it has created a logistical bottleneck in the country, leaving little choice for mills but to scale back or halt production until the situation improves.
South Korea produced 5.5mn t of steel in April 2022. It is the world's fifth-largest producer of crude steel, behind China, India, Japan, the US and Russia, the latest data from the World Steel Association show. The country produced 22.4mn t of steel between January and April, down by 4pc on the year as steel demand has been weak since the second half of 2021 while recent Covid-19 lockdown measures in China have further slowed the recovery in manufacturing sectors across Asia. Production from electric arc furnaces accounted for about 32pc of total crude steel production in South Korea.
"Steel production is guaranteed to be affected. I can imagine that raw materials will not be delivered from ports to mills, and likewise, finished [steel] products will probably be jammed at mills," a trader said.
South Korea's largest steelmaker Posco said that it will halt production at some of its plants because of a lack of storage space for its unshipped finished steel products. Meanwhile, Hyundai Motor has reported that vehicle production has been affected at five of its plants in Ulsan owing to the strike.
"The strike has already affected our company. We may reduce some steel production from this weekend. But the magnitude of the production cut will depend on when the strike ends," another mill said.
South Korea is also a major and net importer of ferrous scrap. Its major suppliers are Japan, the US and Russia. The country's imports were around 6mn t/yr before 2019 but the volumes have fallen to around 4.5mn t/yr since 2020 because of the outbreak of Covid-19 and higher self-sufficiency rates.
Some market participants expect major steelmakers' inventory to decrease amid logistical disruptions of domestic scrap supply, while others said that suspension of more steel production lines would be inevitable if the strike is prolonged, ultimately leading to less demand for ferrous scrap.
"Usually South Korean buyers show less interest for imported scrap during strikes in previous years," a Japanese trader said.
The South Korean domestic scrap price was in an upward trajectory and rose by around $90/t between January and mid-March, before falling by about $62/t between early April and early June, in line with the falling international scrap market.
Trade sources said that the truck drivers strike came at the worst possible time as the nation grappled with a faster-than-expected inflation rate, mostly driven by the geopolitical tensions between Ukraine and Russia.
According to Statistics Korea, the country's Consumer Price Index (CPI) was at 107.56 in May 2022, up by 5.4pc year on year, marking the fastest annual growth since 2008.
"I think we can expect the strike to add more burden to the [country's] economy as it creates a chokehold for product delivery," a market participant said. "And the end state will be costlier production for steel products, which, I guess, will eventually be passed to consumers."
Source:Argus Media
