South Korean steelmakers who long had to fight Chinese competitors overseas are struggling to defend the home front from invasion of cheap but high-quality Japanese imports and profitability of their products amid spike in metal values.

According to the Ministry of Trade, Industry and Energy and Korea Resources Corp. on Thursday, spot iron ore prices rose to $130.17 per metric ton as of Monday, hitting the highest level in six years and a half. The strong gains have been sustained since May when the prices recovered from their lows to around $80 a ton in March.

The rally has been mainly driven by the rapid economic recovery of China that imported the largest-ever amount of iron ore in July to supply to the construction and manufacturing industries that have returned to near normal from downturn during virus peaks.

Sales of excavators, an important indicator of the construction market in China, shot up 51.3 percent from January to August, reaching almost 90 percent of sales of the whole last year. The country’s manufacturing purchasing managers index (PMI) also rose from 52.8 in July to 53.1 in August.

Industry experts predict the iron ore prices would stay between $100 and $130 by the end of this year on unfettered demand.

The surge in raw commodity prices eats into profitability of Korean steel makers that heavily rely on iron ore import.

Worse yet, cheap Japanese steel imports flooding into the Korean market.

According to Korea Iron & Steel Association, total imports of H-section steel to Korea declined 24.2 percent to 271,871 tons from January to August compared to the same period a year ago, but imports from Japan soared 55.1 percent to 114,835 tons. Japanese imports accounted for 42 percent of the total imports, compared with 13 percent to 22 percent share from 2017 to 2019.

Last year, the price of Japanese H-section steels was $20 to $30 higher than those of other countries due to their high quality, but it fell down to the similar levels with those from other nations in the first half of this year. The price at $484 a ton as of June was even lower than Vietnamese products at $524 and Malaysian $519.

By Pulse

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