China’s Oversupply Impacts Korean Economy
Exports to China Plummet, Imports Surge
Key Industries Struggle, Burdening Trade Balance
The Second Half of the Year Holds Little Hope for Improvement
As China, facing a recession due to weak domestic demand, floods the market with overproduced, low-priced steel, Korean steel exports are plummeting. The steel industry faces mounting concerns as this Chinese low-price offensive is anticipated to continue in the latter half of the year.
According to the Ministry of Trade, Industry and Energy, steel product exports recorded a 21.2% decline in September 2022 compared to the same period the previous year, and have been on a downward trajectory ever since. In the 22 months leading up to June of this year, only three months saw positive growth in steel product exports: June 2022 (+3.1%), September 2022 (+7.3%), and January 2023 (+2.0%). During this period, steel product exports consistently experienced a decline of 10-20%, putting significant strain on the trade balance.
Among the 15 key export items, steel products account for approximately 5%, roughly a quarter of the 20% share held by semiconductors.
The decline in steel exports is also evident in Chinese trade data. The Korea International Trade Association reports that steel exports to China exceeded $400 million from March to December 2021, but fell to $300 million in 2022 and have remained around $200 million since December of last year.
Conversely, Chinese steel imports have shown steady growth since the second half of 2022, reaching $1.015 billion and $1.038 billion in April and May of this year respectively, surpassing $1 billion for two consecutive months.
The trade deficit in the steel sector has nearly tripled, rising from $268 million in September 2022 – when global steel exports entered a downward trend – to $751 million in May.
The steel industry believes that the export slump caused by China’s overproduction due to sluggish domestic demand is likely to persist in the second half of the year. Park Gwang-rae, a researcher at Shinhan Investment & Securities, noted, “Even the recently announced Chinese real estate stimulus measures are not providing a boost to the steel market,” and “A full-fledged rebound in steel prices is expected only when Chinese construction orders increase.”
There are also concerns that the export environment will deteriorate significantly as countries like the United States and the European Union (EU) implement measures to protect their domestic markets amidst a global construction market downturn.
Gong Moon-ki, a researcher at the POSCO Research Institute, commented, “As each country strengthens its domestic market protection barriers, there are concerns that Korea’s export environment will also worsen,” adding, “It will be challenging to expand exports in a situation where domestic demand is also weak. The second half of the year will be difficult for the domestic steel industry, which will have to compete fiercely with Chinese products.”
China’s Oversupply Impacts Korean Steel Exports
China, oversupply impacted by economic slowdown
Exports to China plummet, but imports surge
Key industries ‘colorless’… Burden on trade balance
The second half of the year is also gloomy, with no signs of improvement
Korean Steel Exports in a Slump
As China, grappling with a recession due to sluggish domestic demand, floods the market with overproduced low-priced steel, Korean steel exports are facing a steep decline. This trend, compounded by the expectation that the Chinese low-price offensive will persist in the second half of the year, raises significant concerns for the Korean steel industry.
Data from the Ministry of Trade, Industry, and Energy reveals a concerning picture. Steel product exports recorded a negative growth of -21.2% in September 2022 compared to the same period in 2021, marking the beginning of a downward trend that has persisted since then. Across the 22 months leading up to June 2023, only three months saw positive growth in steel product exports: June 2022 (+3.1%), September 2022 (+7.3%), and January 2023 (+2.0%). During this period, steel product exports generally experienced a decline of 10-20%, placing a significant burden on the trade balance.
Among the 15 major export items, steel products account for approximately 5%, roughly a quarter of the 20% share held by semiconductors.
Trade Deficit Widens
The downturn in steel exports is further evident in the trade figures between Korea and China. The Korea International Trade Association reports that while steel exports to China exceeded $400 million from March to December 2021, they plummeted to $300 million in 2022 and have remained around $200 million since December of last year.
In contrast, Chinese steel imports have steadily increased since the second half of 2022, exceeding $1 billion for two consecutive months in April and May 2023, reaching $1.015 billion and $1.038 billion respectively.
The resulting trade deficit in the steel sector has also skyrocketed, nearly tripling from $268 million in September 2022, when global steel exports entered a downward spiral, to $751 million in May 2023.
Outlook for the Second Half of 2023
The steel industry anticipates that the export slump caused by overproduction stemming from China’s weak domestic demand is likely to persist in the second half of the year. Park Gwang-rae, a researcher at Shinhan Investment & Securities, emphasizes that even recent Chinese real estate stimulus measures have not yet had a positive impact on the steel market. He believes a full rebound in steel prices will only begin when construction orders in China increase significantly.
Adding to the challenges, there are concerns that the export environment will deteriorate further as countries like the United States and the European Union (EU) raise barriers to protect their domestic markets in response to the global construction market downturn.
Gong Moon-ki, a researcher at the POSCO Research Institute, highlights the rising domestic market defense barriers and their potential negative impact on Korea’s export environment. He warns that with domestic demand also weak, expanding exports will be difficult. This poses a significant challenge for the Korean steel industry, which will have to contend with fierce competition from Chinese products in the second half of the year.