Dongkuk Steel, a major player in South Korea's steel industry, announced a temporary shutdown of its Incheon rebar production plant on May 26, effective for approximately one month between July and August. This unprecedented move in the company's 71-year history underscores the severe impact of a prolonged slump in the construction sector and a chronic oversupply in the domestic steel rebar market.
The Incheon plant, the largest single rebar production facility in South Korea with an annual capacity of 2.2 million tons, is a critical asset, accounting for 40% of Dongkuk Steel's annual sales. The decision to cease all production processes from July 22 to August 15 is expected to reduce rebar supply by approximately 200,000 tons.
Dongkuk Steel has been struggling with dwindling demand for over two years due to the deteriorating construction industry. The company had already implemented drastic production cuts, scaling back plant utilization from an initial 60% (achieved by switching to night operations to leverage lower electricity rates) to a mere 50% recently. However, these measures proved insufficient to counter the persistent oversupply and declining prices, forcing the company to take the drastic step of a full shutdown.
"As the market's responsible largest producer of a single plant, we decided to halt production out of concern that continuing price competition below marginal cost in the current market environment could lead to mutual destruction," a Dongkuk Steel official stated. The company cited the additional cost burden from anticipated summer industrial electricity rate surcharges and rising raw material prices as contributing factors to the decision.
This halt is not an isolated incident but rather a stark reflection of the broader challenges facing the South Korean steel industry. Other major players, including Hyundai Steel, have also taken similar measures, temporarily suspending rebar plants due to low demand and oversupply. The domestic rebar market has seen demand fall to its lowest levels since statistics began in 2010, with prices plummeting significantly.
Dongkuk Steel plans to maintain its 50% operation rate until June before initiating the shutdown. Pre-contracted volumes will be supplied from existing inventory. The company will closely monitor market conditions in August, and a company official cautioned that an extension of the shutdown period might be necessary if the oversupply situation does not improve.9 "We have reached a point where we can no longer delay action to address excess inventory and supply-demand imbalance," the official added.
The unprecedented shutdown of such a significant production hub highlights the urgent need for market stabilization and a potential restructuring within the South Korean steel sector as it grapples with a challenging economic landscape and evolving global trade dynamics.
