South Korea's environmental platforms to hinder steel industry growth

The country’s steel companies will increasingly employ technology to lower emissions in complying with environmental regulations.

Production growth in South Korea's steel industry is expected to slow to an average of 0.3% YoY in the coming decade compared to a recorded average growth of 3.9% during the past ten years, according to Fitch Solutions.

This is said to be mainly driven by the country’s emission trading scheme where they have put a cap on the companies’ greenhouse emission. Other factors for the industry’s slowdown are the decreasing domestic demand and the quota on steel exports to the US.

As a result, steel companies will step up investment in technologies that will help reduce environmental footprint, so as to comply with the maximum level of total emissions permitted. These regulations will also set increased risks for penalties.

“As a result, the recent trend of companies employing technology to reduce their carbon footprint will continue and in greater scale. This will serve as a boon to companies providing these green technologies, an industry the government wants to develop,” Fitch said.

South Korean exports of steel have a quota of sending 2.7 million tonnes per annum, which is 30% less than the annual average during 2015 to 2017. The US have also imposed higher tariffs on imported cars, leading to automotive steel sheets’ decreasing demand.

“We expect smaller South Korean companies, such as Seah Steel, Husteel and Nexsteel, to be hit harder than their larger counterparts, due to their greater exposure to the US,” Fitch added.

On the other hand, Posco and Hyundai Steel who have significantly less exposure to the US are poised to weather the storm better than their more vulnerable counterparts.