Super Typhoon Hinnamnor in September last year pounded Pohang City of Gyeongsang buk-do, home to South Korea’s major steelworks. Restoration progress has been smooth through corporate and government efforts, but full normalization is yet to take place. Supply constraint in steel, a core intermediary input for a wide range of industries, can bring about adverse impact on the country’s key industries. This paper examines damage at steel production lines in Pohang and the consequential impact on key dependent industries like ship and motor vehicle producers based on observations by the Bank of Korea regional offices and inter-industry relationship analysis.
Steel output and exports from Pohang have plunged and business sentiment deteriorated since September and are yet to recover to year-ago levels. Prices of key materials including stainless and hot-rolled steel have shot up due to supply instability since flooding. Input-output table showed high reliance of Pohang steelworks by shipbuilding, motor vehicles, and construction materials sectors.
Observation by BOK regional offices on key steel-dependent manufacturers found restricted disruption in steel supply thanks to fast responses through adjustment in outbound shipments, replacement production at Gwangyang facility, and import replacements. But a further delay in full restoration can bring about setback in the supply of special steels and electrical plates in production in LNG carriers and electric vehicles. Calculation from input-output modeling to study the impact from steel supply constraint on inter-dependent industry derived an estimated loss of 0.5 trillion won ($402 million) to 0.7 trillion won in key industries like shipbuilding and motor vehicle manufacturing and an estimated 1.5 trillion won to 2.4 trillion won in broad industry from further delay in full normalization.
The findings indicate output and exports of basic steel and related industries could be adversely affected if normalization of steelworks in Pohang takes longer. To minimize the potential setback, industries are advised to stock up adequate inventories and diversify supply chain.