Scrap iron prices surged in January in South Korea partly due to steel makers’ plans to convert their steel making process into decarbonizing system under the state-led agenda to achieve carbon neutrality.

According to industry sources on Monday, the average price of scrap iron came at 601,000 won ($503.14) as of the third week of January in Korea, more than twice the price of 282,000 won in June 2020 and close to the historic high of 670,000 won recorded in June 2008 before the global financial crisis.

Both internal and external factors are behind the price hike.

Japanese steel maker Nippon Steel earlier announced a plan to build a new large-scale electric arc furnace to reduce its carbon dioxide emissions by 30 percent by 2030. Chinese peers also have decided to increase steel production from electric arc furnaces and use of scrap iron.

On top of that, Korean steel giants POSCO and Hyundai Steel commanding nearly 80 percent of the country’s total crude steel production are leading the surge in ferrous scrap prices, according to the electric arc furnace industry.

POSCO last year expanded its purchase of scrap iron with a plan to use it more in its steel making process. It unveiled its plan to add an electric arc furnace facility to the Gwangyang plant in South Jeolla Province by 2025 and the Pohang plant in North Gyeongsang Province by 2027.

Hyundai Steel has been increasing the use of high-quality scrap iron harvested at home, not imported from overseas, to reduce carbon emissions.

Electric arc furnace industry now is raising concerns about a possible deterioration in profitability led by POSCO’s move to meet carbon neutrality. Construction companies would not accept a rise in the prices of reinforcing rod and bar steel in sync with an increase in the price of scrap iron.

Steel makers, however, do not agree with the claim.

“Korea’s scrap iron market is 60-70 percent dominated by only a few companies like Dongkuk Steel Mill. POSCO’s plan to build a new electric arc furnace does not have a significant effect to the price,” said an official from the steel making industry.

POSCO is Korea’s household steel mill and traditional carbon emitter that produced an average 78.8 million tons of carbon dioxide per year in 2017-2019. It now aims to reduce its carbon emissions by 20 percent by 2030 and 50 percent by 2040 to complete the carbon neutrality by 2050.

Experts say it is necessary to see scrap iron as one of the strategic resources for stable supply management.

“We have to divide the grades of scrap iron for separate management and stale supply to address part of the price hike,” said Min Dong-joon, professor in materials science and engineering at Yonsei University.

By Moon Gwang-min, Lee Yu-sup and Lee Ha-yeon

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]