Korean Steel Market Mar 25~26, 2019 86 th Session of the Steel - PowerPoint PPT Presentation

Korean Steel Market Mar 25~26, 2019 86 th Session of the Steel Committee Korea Iron and Steel Association

General Economy (’19 e ) With the expansion of government fiscal policy, GDP is expected to grow by 2.6%, mostly GDP driven by consumption and export Private (’19 e ) Empowered by government policy, private consumption will show steady growth trend, but Consumption compared to ’18, decreased growth rate is expected, due to slowdown in growth of household income (‘19 e ) Due to recovery in global semiconductor consumption, equipment investment is expected to Equipment Investment show positive growth rate, focused in IT manufacturing industry Construction (‘19 e ) Expected to show continuous negative growth rate due to slump in new construction orders Investment (‘19 e ) Forecasted to show slight decrease in growth compared to ‘18, due to slowdown in world Exports economic growth and global trade disputes Economic Indicators in Korea (Y-O-Y %) 2019(e) (Y-O-Y %) 2016 2017 2018 2020(e) GDP Growth Rate 1H 2H TOTAL GDP 2.8 3.1 2.7 2.5 2.8 2.6 2.6 3.1 2.8 2.7 2.6 2.6 Private Consumption 2.5 2.6 2.8 2.5 2.7 2.6 2.6 Equipment Investment -2.3 14.6 -1.7 -2.1 6.3 2.0 2.3 Construction Investment 10.7 7.6 -4.0 -6.1 -0.5 -3.2 -2.0 Exports 2.2 3.8 3.9 2.4 3.8 3.1 3.0 Imports 3.6 7.4 1.7 0.6 4.0 2.3 2.5 '15 '16 '17 '18 19e * Source : Bank of Korea * Source : Bank of Korea 2

Steel-Consuming Industries Construction Automobile (‘18) Construction Investment has been decreased by 3.7% (‘18) Auto production has been decreased by 2.1% (Unit: 1,000 units) (Unit: trillion \) 4,560 164.9 (4.4%) 160.5 ( △ 2.3%) (47.0%) 158.0 154.5 (0.7%) ( △ 3.7%) 4,230 4,110 ( △ 7.2%) ( △ 2.7%) 4,030 ( △ 2.1%) '15 '16 '17 '18 '15 '16 '17 18 (Source : Korea Automobile Association) (Source : Construction Association of Korea) Shipbuilding Machinery (‘18) Shipbuilding has been decreased by 27.4% (‘18) Machinery production has been decreased by 1.5% (Unit: trillion KRW) (Unit: Million CGT) Shipbuilding Shipbuilding order 12.7 (5.0) 12.4 105.2 ( △ 3.1) 12.6 (3.7%) (65.8) (1.3%) 103.7 103.6 ( △ 1.5%) 10.6 ( △ 13.8) ( △ 2.4%) 101.3 10.9 ( △ 15.5) 7.7 ( △ 27.4) 7.6 (24.5.5) 2.2 ( △ 79.8) '15 '16 '17 '18 '15 '16 '17 '18 (Source : Korea Association of Machinery Industry) (Source : Clarkson) 3

Korean Steel Market Steel Consumption Steel Production Steel production has been decreased by Steel consumption has been decreased 2.4%, recording 75.2 million tons in 2018 to about 54 million tons in 2018 due to slowdown in construction sector and decreased shipbuilding Consumption Production (million MT) (million MT) ( △ 1.3%) 55.8 57.1 56.3 53.7 ( △ 4.6%) (3.7%) 77.1 75.2 ( △ 2.4%) 74.3 74.2 23.1 23.3 22.8 21.6 21.2 19.9 20.1 21.5 46.6 46.4 47.2 45.9 27.7 28.3 28.2 26.8 '15 '16 '17 '18 '15 '16 '17 '18 Flat Long Pipe Total Flat Long Pipe Total * Source : Korea Iron & Steel Association 4

Korean Steel Market (Cont’d) Steel Exports (‘17) Despite decrease of exports to major markets, exports showed a similar trend to the recent years due to increased supply for factories invested by Korean steel makers (‘18) Due to trade protectionism, Korean steel exports decreased by 3.9%, and especially to the United States (-28.3%) , due to U.S. section 232 measure * Change in exports to major markets : U.S.(-28.3%), Japan(-7.4%), ASEAN (-3.9%), China(-3.8%) Exports by product category (2015~2018) Korea’s Steel Exports by Country in 2018 (million MT) 31.7 31.6 31.0 30.4 TURKEY CANADA (2.7%) (2.0%) MEXICO 2.9 2.9 2.9 3.2 (6.9%) ASEAN (10) (19.8%) 24.8 24.4 23.6 23.3 U.S. (8.3%) INDIA CHINA '15 '16 '17 '18 (10.1%) (13.5%) Flat Long Pipe EU (28) JAPAN (11.6%) Semi Others Total (12.5%) * Source : Korea Iron & Steel Association * Source : Korea Iron & Steel Association 5

Korean Steel Market (Cont’d) Steel Imports (‘17) Decreased by 16.8% due to slump in shipbuilding industry and domestic effort to reduce imports (‘18) Decreased by 22.2% due to decrease in imports from major markets such as China and Japan * China and Japan, which account for 84.7% of the total imports, decreased by 34.5% and 8.7% respectively, compared to the previous year. Korea’s Steel Imports by Country in 2018 Imports by product category (2015~2018) 23.7 MEXICO 22.1 EU (28) BRAZIL (million MT) 19.7 (0.6%) ASEAN (1.9%) (1.6%) 3.4 15.4 2.9 2.4 (5.9%) 5.9 5.7 5.0 2.0 3.3 12.8 11.8 11.0 8.6 CHINA '15 '16 '17 '18 (49.2%) JAPAN (35.5%) Flat Long Semi Others Pipe Total * Source : Korea Iron & Steel Association * Source : Korea Iron & Steel Association 6

Recently Introduced Environmental Policy Korea Emission Trading Scheme (KETS) Overall GHG reduction target By 2030 : 37% below BAU(536MtCO2eq) Type od ETS Mandatory with voluntary opt-in (599 business entities) Phase I (‘15~’17) : 1,687MtCO2eq, including a reserve of 89MtCO2eq for market stabilization measures, early action and new entrants 2015 : 573MtCO2eq, 2016 : 562MtCO2eq, 2017 : 551MtCO2eq Cap and trajectory Phase I I (‘18~’20) : 1,796MtCO2eq, including a reserve of 153MtCO2eq for market stabilization measures and new entrants 2018 : 547.7MtCO2eq, 2019 : 547.7MtCO2eq, 2020 : 547.7MtCO2eq Carbon Price KRW26,500(USD23.32), market price of 15 March 2019 Emission covered by the ETS 68% CO 2 , CH 4 , N 2 O, HFCs, PFCs, SF 6 GHG covered 23 sub-sectors from steel , cement, petro-chemistry, refinery, power, buildings, waste Sectors covered and thresholds and aviation sectors Inclusion thresholds : Company ≥125,000tCO2/year, facility ≥25,000tCO2/year Phase I (‘15~’17) : 100% free allocation, no auctioning Allocation phase I I(‘18~’20) : 97% free allocation, 3% auctioned Phase III(‘21~’25) : less than 90% free allocation, more than 10% auctioned The penalty shall not exceed three times the average market price of allowances of the Enforcement given compliance year or KRW 100,000/ton(USD89) * Source :Ministry of Environment, ICAP 7

Fine Dust Reduction To improve quality of air, GOK aims to reduce 35.8% of fine dust emission by ’22 in Objective power plants, industry, transportation and living sectors Reduction Portion by Sector Emission in 2014 and the Target by 2022 (Total Reduction : 116 thousand tons) 324 (Thousand MT) Living Power 208 8.3 % plant 10.1 % 123 90 Transportation 61 58 49 61 51 38 27.9 % Industry 53.7% Total Power plants Industry Transportation Living Emission ('14) Reduction Target ('22) * Source : Ministry of Environment * Source : Ministry of Environment Reduction Mechanism in Industry sector & Efforts of Steel Industry GOK has adopted a new emission charge for nitrogen oxides (NOx) starting from Jan 2020 - Emission charge : 2,130 KRW ($1.9) / 1kg of NOx Korean steel companies are planning to invest 844 million U$ to establish additional air pollution prevention facilities 8