Steel Association). Many small or medium-sized firms entered into rolling or further processing of steel primary forms or hot coils supplied by POSCO. Some of them installed or upgraded their elecuic arc furnaces to meet their own demand for crude steel.
Table 3.7 Differences in capacities and production levels among rolling, steel-making and iron-making in Korea, selected years, 1971-90''
1971 1973 19g3 1987 1990
(RoUing =100) Steel-making
Iron-making 427 (38.2) 9.5 (17) 47.5 (61.8)^ 25.1 (32.8)'' 96.5 (91.0) 60.7 (66.4) 86.4 (92.1) 53.3 (63.2) 54.2 (62.5) 78.8 (92.2)
Notes a Ratios of semis and pig iron production to that of finished steel in parentheses b Figures for 1974 when POSCO operated a fuU year for the first time.
Source Korea Iron and Steel Association, Steel Statistical Yearbook, various issues.
to supply nearly 90 per cent of POSCO's crude steel-making capacity (Tables 3.1, 3.2, 3.6 and 3.7). As the Korean steel industry underwent a process of vertical integration, from 1983 about 70 per cent of pig iron requirements for crude steel production was supplied by POSCO and about 90 per cent of finished steel was met by domestically produced steel primary forms. Table 3.7 suggests that the Korean steel industry was integrated backwards - developing a rolling sector first, followed by expansion in steel- making capacity and then in iron-making capacity.
Export expansion and enhancing international competitiveness
Due to rapidly increasing domestic production, Korea's exports of finished steel, which were less than 100,000 tonnes before 1970, began to expand dramatically from the early 1970s.^^ After exceeding 1 million tonnes in 1974, finished steel exports grew continuously to reach 5.6 million tonnes in 1986. The average growth rate in the period
1974-86 was 12.6 per cent per annum.
However, Korea imported substantial and increasing amounts of rolled products as well, due to rapidly rising domestic demand. Total finished steel imports broke the one million tonne level in 1972, rising to over 2.5 million tonnes in the mid-1980s, accounting for more than 20 per cent of domestic consumption (see Table 3.1).
Despite remarkable increases in production, Korea remained a net importer until 1978 due to high growth rates of domestic demand for rolled products in this period (Figure 3.2). Korea's total exports of finished steel exceeded imports for the first time in 1979, by 27,000 tonnes. Finished steel trade surpluses increased progressively thereafter. Korea achieved a trade surplus of 4.1 million tonnes in 1982, and then maintained its position as a net finished steel exporter with surpluses of between 2.5 and 3.5 million tonnes (Figure 3.2).
13. Unlike the other industries promoted by the government under the heavy and chemical industry drive, POSCO actively entered the international export market for finished steel as soon as it began operation, although it was meant to supply mainly the domestic market.
Figure 3.2 Net trade of iron and steel in Korea, 1970-90 (thousand tonnes) 64 Net exports 4,000- 3,000- 2,000- 1,000- 0 - -1,000- • Finished steel • — Semis A Pig iron •72 '75
Sources Tables 3.1 and 3.2.
'78
i
' 8 1 •84
A •
'87 '90
Figure 3 J a Price competitiveness in major steel products, selected countries,
1974 and 1984 (US$ per tonne) Hot coil 300 Wire rod J 300 )0 \ Hot coil 600 i y' I I S Z / / / V ^ ^ ,00 e o r ^ ' t ^ ' C ™ < % . \ / / \ \ \ I / / /•' r \ 4 , / / / / \ A / / . • . \ \ \ / A^300 Cold rolled coil
1974
Korea Japan
US
W. Germany Cold rolled coil
1984
-»—D Plate
Notes Figures are in list prices of domestic products. Export prices by domestic producers or import prices of foreign products may be different.
Source W o r l d Steel D y n a m i c s , Steel Strategist No. 11, September 1985.
Construction of P O S C O brought about not only rapid increases in production and exports but also a remarkable improvement in price competitiveness. In 1974, the year after the dedication of P O S C O , domestic prices of various steel products in Korea were still higher than those in both Japan, the most price-competitive country at the time, and the U n i t e d States (Figure 3.3a). Since that time, the price competitiveness of the
Korean steel industry has increased both in the domestic and international markets. In 1984, ten years after the construction of POSCO, the Korean steel industry was supplying the domestic market with various steel products at prices lower than steel firms in other countries/^ Export prices were also very competitive. In the mid-1980s, for example, Korea's export prices of most products were about 10 or 20 per cent lower than Japan's export prices (information provided by POSCO).
As shown in Tables 3.1 and 3.2, upstream processing - crude steel and pig iron- making - supplied mostly the domestic rolling sectors. Both exports and imports of semi-fmished steel and pig iron were not very large compared to those of finished steel, even though production and domestic demand were rapidly increasing. In the case of semi-fmished steel, Korea became a net exporter in 1979, though with a small surplus, owing to the completion of POSCO's third expansion project in December 1978, which added 2.9 million tonnes to the nation's crude steel capacity.^^ Despite continuously increasing crude steel production, however, Korea turned into a net importer of semi- fmished steel again in 1986, to meet input requirements for a strong increase in finished steel production.
Iron-making experienced a similar trade trend to steel-making (Figure 3.2). Followed by a sharp rise in production of pig iron by POSCO, Korea became a net exporter of pig iron in 1979, though with a small surplus. Soon after, in 1983, however, Korea became a net importer of pig iron once more. Since that time, pig iron imports have risen, and there has been little export, although production was continuously increasing with expansion of POSCO's blast furnaces (see Table 3.2).
FURTHER CAPACITY EXPANSION SINCE 1987
Rapid economic growth and industrialisation in Korea has continued strongly since 1987. Growth of GDP at constant prices averaged more than 9.6 per cent per annum between 1986 and 1990 (National Statistical Office, Major Statistics of Korean Economy, 1992). Continuing industrialisation resulted in increasing shares of manufacturing output by heavy and chemical industries from about 57 per cent in the mid-1980s to more than 60 per cent in the late 1980s (Appendix Table A.2). In particular, the metal products and machinery sectors, which produce various steel-
14. This does not necessarily mean either that the prices were decided fully by market forces or that the