Recovering Demand
The worldwide demand for steel has been low for several years, largely as a result of a decrease in construction in China. The Chinese construction industry is showing some signs of expansion once again, but it is unlikely to recover to previous levels in the near future. Fortunately, growth in other areas is likely to compensate for that and allow the demand for steel to recover to previous levels. The Chairman of the Worldsteel Economic Committee anticipated growth in all of the major markets except for China during 2017. Although he made this prediction in the early part of last year, the prediction has not changed.
The degree of recovery will depend heavily on the construction industry of developing nations. As their economies tend to be relatively unstable, it is difficult to predict how well the industry will perform beyond general trends. However, increased support for the shipbuilding industry of South Korea by the government is also likely to make an impact. The government policies will allow the companies to diversify and expand, which will increase the domestic demand for steel in addition to the construction-driven increase in exports.
Previous Indicators
Some signs of recovery were already evident by the end of 2016. Bloomberg Markets reported a massive boom in the earnings of POSCO, one of South Korea’s dominant steel production companies. Global steel prices were starting to recover from their unfortunate slump at the same time, and it appears that the recover is likely to continue throughout 2017.
Challenging Tariffs
The South Korean steel industry does face a major challenge in the form of tariffs. The government of the United States significantly raised the potential tariffs on South Korean steel in the early part of 2016. This occurred as a result of the alleged business practices of nations in the area, and similar action was taken against several other nations in Asia. This resulted in some diplomatic conflict which has not been entirely resolved.
The change offers two threats to the steel industry of South Korea. At a direct level, it makes it more difficult for South Korean nations to export their steel to the United States. This is suboptimal, but the rising demand for steel in other nations means that it is unlikely to have a major impact. The ongoing dispute that the tariff started is a greater cause for concern, because it could escalate into other, more significant restrictions if it is not resolved.
The Final Outlook
On the whole, the South Korean steel industry can expect to see success. It will take time for the industry to recover to previous levels, but the process appears to be starting. As long as there are no sudden and unexpected changes that disrupt the industry, manufacturers will likely experience a slow but steady increase in their profits.
