Hyundai Steel Halts Rebar Production as Market Faces Prolonged Slump
In a significant move reflecting the struggles of the South Korean steel industry, Hyundai Steel, the nation's largest rebar producer, has announced the cessation of its rebar production at its Incheon and Pohang plants. This shutdown, which is expected to last until the end of January 2025, comes as a direct response to the continuing downturn in the construction market. The prolonged slump has led to sharply declining demand for rebar, forcing Hyundai Steel to implement a drastic production cut.
Declining Demand and Price Slumps in the Rebar Market
The rebar market has faced severe challenges, with domestic demand for the steel product reaching its lowest level since record-keeping began in 2010. As of November 2024, the total domestic rebar sales volume was 7.025 million metric tons, reflecting a nearly 20% decrease compared to the same period in the previous year. This slump in demand is attributed to the prolonged slowdown in the construction industry, particularly in the housing and infrastructure sectors, which are the primary consumers of rebar.
Despite Hyundai Steel reducing its operating rates in 2024, the company has found it necessary to cut production at its major plants to further address the decreasing sales volume. The company's rebar production for January 2025 is projected to be more than 30% lower than usual, a move which highlights the severity of the market downturn.
Competition and Production Cuts by Other Major Steelmakers
Hyundai Steel is not alone in its efforts to manage the crisis. Dongkuk Steel, the second-largest rebar producer in South Korea, is also adjusting its production plans. The company, which had already scaled back operations by running its rebar plant only at night since July 2024, will now further reduce its production rate to 50% of its usual capacity.
The production cuts extend across South Korea’s eight major rebar manufacturers, including Hyundai Steel and Dongkuk Steel. Together, these companies have reduced their output to 480,000 to 500,000 metric tons of rebar in January 2025, less than half of their combined monthly production capacity of around 1 million metric tons.
Challenges of Surplus Inventory and Falling Prices
The rebar sector is also grappling with the issue of unsold inventory. As of the end of November 2024, the industry had accumulated 591,000 metric tons of rebar in inventory, reflecting a significant increase in unsold goods since the summer months. This has put additional pressure on steel producers, who are already dealing with a market oversupply, making it even more challenging to stabilize prices.
Rebar prices, which reached 970,000 Korean won per metric ton in the first quarter of 2023, have recently fallen to the upper 600,000 won range. The steep decline in prices has led to significant financial strain for producers, further exacerbating the economic difficulties they face. Some industry experts are predicting that the rebar market will not experience any significant recovery this year due to the sluggish state of the construction sector.
Rebar’s Dependency on the Domestic Market
Unlike other steel products like hot-rolled steel, cold-rolled steel, and thick plates, which have sustained demand due to growth in industries such as automotive and shipbuilding, rebar is almost exclusively consumed by the domestic construction sector. With the export market for rebar being virtually non-existent, domestic demand is the primary driver of the industry’s fortunes.
As a result, the rebar market has been left in a difficult position, where production cuts are the only viable option for managing the excess supply and stabilizing prices. Rebar manufacturers are likely to continue reducing supply in an attempt to curb the price decline and address the rising cost pressures brought on by high exchange rates and electricity rate hikes.
Price Normalization and the "Minimum Closing Price" Strategy
To help support price recovery, many rebar producers, including Hyundai Steel and Dongkuk Steel, are introducing strategies designed to curb the price fall. Dongkuk Steel has implemented a "minimum closing price" policy, which sets a lower limit of 700,000 Korean won per metric ton for its rebar distribution. The company plans to increase this price by 50,000 won per month, signaling its intent to drive prices back up through controlled production levels and price negotiations.
Hyundai Steel and Dongkuk Steel have also ceased selling rebar to distributors, who often purchase at lower prices and resell during peak seasons. This marks a significant shift in strategy, as it is the first time since the 2008 financial crisis that South Korean steelmakers have taken such a step. The decision is aimed at preventing distributors from creating further market volatility by buying at low prices and reselling at a profit during periods of high demand.
The Road Ahead for the South Korean Rebar Market
The rebar industry in South Korea faces a difficult year ahead. With the domestic construction market still weak and inventory levels high, producers are focused on price normalization through production cuts and supply constraints. Steelmakers will likely continue to balance supply and demand to prevent further price declines and preserve profitability.
This environment presents significant challenges for the South Korean steel industry, but it also offers opportunities for manufacturers to strengthen their negotiation power with clients and distributors. By controlling supply and limiting production, companies hope to return to a more sustainable pricing structure in the coming months, ensuring their survival in a difficult market.
The ongoing strategies of Hyundai Steel, Dongkuk Steel, and other producers will likely determine the future trajectory of the South Korean rebar market, with production cuts and price stabilization measures remaining central to their recovery plans.
