Experts agree that the iron and steel industry reached the top long ago and it will soon suffer from an overabundance of supply with less demand than before. That lowers the total shareholder return and slows capital turnover. Korea is expecting less than 2% growth in the iron and steel industry in 2009, while the US and EU have predicted less optimistic figures.
Looking at the outlook of this year's iron and steel industry in Korea, the export rate is predicted to reduce from 20,631 tons to 18,720 tons this year. The production rate is expected to drop 7.6%, while the consumption rate will also likely decrease by 9.5%. Imports are cloudy as well, expected to drop by 17.8%. But does a champion stop fighting after a taking few head shots and being pounded on the mat None of these obstacles deter the iron and steel industry from growing. Indeed, survival projects have begun all around the world with varying strategies.
Throughout the interview that the Korea IT Times conducted with President Sim Yoon-soo of the Korea Iron and Steel Association, the iron and steel industry in Korea was further analyzed, and President Sim suggested several strategies.
Q: Where did the bulk of the demand to develop the iron and steel industry come from in the past and what is the prediction for supply and demand this year
A: The iron and steel industry has a very close relationship with the construction industry. Fortyfive percent of the iron and steel industry relies on the construction business. When the Middle East construction business was at its peak in the beginning of the year last year, we exported a decent number of construction materials to them since they ran out of time to produce their own to meet such high demand. But now that oil prices have gone down and the price gap is smaller, the number of Middle Eastern buyers is reduced. I believe that now is actually the time to find a hidden key, a new field of demand, and start path finding in the new field to expand our business network. Recently we found a new market in Guam and Myanmar. We are trying to approach business in a different angle at a brand new place this year.
Q: What has been our difficulty in this industry and how should we overcome it this year
A: Although most Korean iron and steel products are very competitive quality-wise, we are importing steel plates and sheet iron from other countries, especially China, due to its low cost. Another product that we rely on importing is hot coils. Only a few domestic companies make this from scratch. Experts are concerned about whether oversupply of Chinese products will affect the domestic market. That is why Korea needs to develop high value added products to compete in the foreign market. The quality of general goods is not much different from Chinese, yet the cost differential makes Chinese products very competitive. Since we excel at adding value to products, we should focus on high-end goods.
Q: IT convergence has been a key word in 2008. Has the iron and steel industry met IT yet
A: You will be surprised to see how most manufacturing systems are aided by IT technology. RFID, wireless controls, and communication networks are bringing factory automation. The best example is POSCO. POSCO's manufacturing and operating systems are automated nearly 90%. This year POSCO is also planning to invest 6 trillion won into equipment development, including automated systems.
Q: Statistics have shown us that 2009 will be a challenging year for the iron and steel industry. How should we overcome the challenges we are facing now
A: First of all, we should make cost effective products that can be competitive both in quality and price. Downsizing must follow to reduce costs, but we also need manpower to develop technology. Second, we must produce appealing products by adding value to them. Third is securing capital. We must secure mobility by reducing debt and collecting capital. The rest of the strategies like IT Convergence and M&A are expected to create a synergy effect in the iron and steel industry as well.
Some are in the process of mergers and acquisitions, while others are in the process of lowering costs. But, in spite of all the negative conditions, a strategic approach can save the iron and steel industry and let it stay in the ring for a second round.
What, then, is Korea's strategy to overcome such difficulties After all, the iron and steel industry has been called the rice of industry in Korea since it has contributed so greatly to the power and economy of the country as a basic materials industry. The global economy and the iron and steel industry will eventually rise again together. The question is how to hang on tight and have the right agenda to ferret out a hidden market.
President Sim Yoon-soo concluded by saying: "This is a hard time for all of us, but I believe that we can learn from this crisis and take the next step. During the Great Depression in 1929, only the top 60% of enterprises survived, but among the 40% of subordinate corporations, 15% jumped to a superior position. If we use this crisis as an opportunity, we can reach higher and attain a triumphant victory."
