As a result of long-term reliance on the Chinese market, the actions of the Chinese Communist Party to globally dump excess capacity at low prices have plunged South Korea’s main export industries of steel and petrochemicals into a serious crisis.
In the over 30 years since the establishment of diplomatic relations between South Korea and China, the trade structure between the two countries has shifted from complementary to mutual competition, with Chinese enterprises now becoming competitors to South Korean exporters.
According to a report by the Korea Asia Finance and Business Institute in June of this year, China is significantly increasing production of products, many of which overlap with South Korea’s key export items. Ten out of the top 15 export items for both South Korea and China are overlapping products.
Based on data from the first quarter of this year, China’s export prices in key competitive sectors such as semiconductors, automobiles, batteries, shipbuilding, and steel are only 30% to 70% of South Korean products. China’s aggressive low-price export strategy inevitably weakens South Korea’s export competitiveness.
China’s low-price dumping also directly impacts South Korea’s domestic market. According to data from the Korea Asia Finance and Business Institute citing the Korea International Trade Association, imports from China of products such as steel, chemicals, displays, and aircraft components have seen a dramatic increase from January to April this year.
NICE Credit Rating Agency held a seminar in September this year on the “Intensified Oversupply and Credit Risks from China,” analyzing the negative impact of Chinese overproduction and exports on six main export industries of South Korea – steel, petrochemicals, solar energy, displays, electric vehicles, and rechargeable batteries.
At the seminar, Lee Su Min, Director of the Third Chamber of NICE Credit Rating, pointed out that “the problem of oversupply in China in the short term will become a major risk factor for the creditworthiness of South Korea’s main industries, with its impact likely to further expand.”
The Korea Asia Finance and Business Institute previously predicted in a report that China will further reduce prices of key products such as semiconductors, automobiles, shipbuilding, and solar energy by 2024, resulting in a 40% to 60% increase in export volume compared to the previous year.
In response to the depressed petrochemical industry, significant efforts are being made by major South Korean companies to sell off their Chinese factories and shut down domestic plants. The petrochemical and steel industries, once driving forces of South Korea’s economic growth, are now deeply challenged.
The petrochemical industry in South Korea has long been heavily reliant on the Chinese market. Data from the Korea Chemical Industry Association revealed that from 2018 to 2020, over 47% of South Korea’s petrochemical products were exported to China. However, this has been gradually declining, dropping to 36.1% by June 2024.
In the third quarter of this year, three out of four petrochemical companies in South Korea saw their performance turn into deficits compared to the previous year. LG Chem’s petrochemical division incurred a loss of 38.2 billion Korean won ($27 million), contrasted with a profit of 36.6 billion won ($26 million) in the same period last year.
Lotte Chemical reported a loss of 413.6 billion won ($300 million) compared to a profit of 28.1 billion won ($20 million) in the same period last year. Hanwha Solutions recorded a loss of 81 billion won ($58 million), down from a profit of 98.3 billion won ($70 million) in the previous year. Although S-Oil saw profits, it decreased by 22.8% compared to the same period last year.
CEO Score, a corporate data research institute, conducted a performance survey in the third quarter of this year of 332 out of 500 large South Korean companies that had submitted quarterly reports. The survey revealed that among the ten companies with the largest year-on-year drop in operating profits, eight were from the petrochemical industry.
To enhance competitiveness in the ailing petrochemical industry, the South Korean government plans to initiate structural adjustments within the industry, including facilitating mergers and acquisitions among companies starting in December this year, marking the first such move since the administration of President Yoon Suk Yeol.
Similarly facing challenges is the steel industry. According to the Korea Iron and Steel Association, South Korea, as the sixth largest steel-producing country globally, imported 8.73 million tons of steel from China last year, marking a 29.2% increase. The performances of the three major steelmakers in South Korea significantly declined in the third quarter of this year.
Posco, South Korea’s leading steel company, reported an operating profit of 438 billion won ($3.1 billion), down by 39.8% year-on-year. Hyundai Steel’s operating profit of 51.5 billion won ($37 million) decreased by 77.5% compared to the previous year. Dongkuk Steel recorded an operating profit of 21.5 billion won ($15 million), marking a 79.6% decrease compared to the same period last year.
Data from the Korea Trade Association showed that South Korea’s steel exports to China exceeded $400 million in the period from March to December 2021, dropping below $400 million in 2020, and further plummeting below $300 million this year. In contrast, steel imports from China showed an increasing trend from the second half of 2022, reaching over $1 billion in both April and May this year, resulting in a trade deficit of $751 million in steel trade with China in May this year, almost three times that of September 2022.
To counter China’s dumping of steel products, the South Korean government initiated an anti-dumping investigation for Chinese thick plate products following a complaint from Hyundai Steel in early October. Thick plates, defined as steel plates with a thickness exceeding 6mm, are primarily used for shipbuilding or as construction materials.
According to industry insiders in South Korea, Chinese thick plates are priced over 100,000 Korean won ($71.6) lower compared to South Korean products, making it almost impossible for the South Korean thick plate industry to generate profits.
In the LCD field, due to China’s low-price dumping, major South Korean companies have been taking drastic measures. As early as 2020, Samsung Display sold its Suzhou plant in China to a local firm and completely ceased its LCD business in 2022. LG Display also stopped domestic production of LCD TV panels in 2022. In September this year, LG Display sold its last remaining TV LCD panel manufacturing plant in China to a local company, signaling the complete withdrawal of South Korean display companies from the LCD TV panel market.
Moreover, China’s low-price dumping has recently spread to the semiconductor storage sector dominated by South Korean companies. Samsung Electronics, a pillar of the Korean economy, saw a 12.8% decrease in operating profit in the third quarter of this year compared to the second quarter, significantly below market expectations. Samsung Electronics stated that the growth in supplies of universal chips by Chinese storage companies had adversely impacted their performance.
As South Korea grapples with the repercussions of China’s aggressive low-price dumping strategy across various industries, the government and companies are strategizing and implementing countermeasures to protect and boost the competitiveness of key sectors facing crises.