POSCO decides to cut production for the first time in 12 years

POSCO decided to make its first production cut in 12 years since 2008. Even major steelmakers at home and abroad, such as ArcellorMittal and Hyundai Steel, cut production, but POSCO did not. However, the decline in demand due to the economic downturn eventually forced the steelmaker to revise production volumes.

POSCO plans to cut production capacity by 980,000 tonnes in May just by reducing the utilization of its production lines, such as cold rolled and hot rolled steel sheets at Pohang and Gwangyang, steel industry sources said on May 10. In particular, POSCO will cut 180,000 tons at the Pohang plant and 800,000 tons at the Gwangyang plant. With steel production at Pohang and Gwangyang at 8.85 million tonnes in Q2 2019, POSCO will reduce average monthly production by more than 30 percent.

The main culprit behind this decline is the slowdown in manufacturing demand caused by the new coronavirus crisis. In particular, the decline in car production had a large impact on the decline. Automotive production in Korea (approximately 813,000 units) in the first quarter of 2020 decreased by about 15% compared to the same period in 2019 and is expected to decline by 20% in the second quarter (856,000 units). The automotive industry is the largest consumer, purchasing 30 percent of total steel production. POSCO decided to significantly cut production at the Gwangyang plant, as the Gwangyang plant mainly produces steel products for automobiles. In addition, the demand for steel sheets for ships is declining.

The production method chosen by POSCO this time around is a so-called flexible production system, in which the steel industry regulates output rather than shutting down blast furnaces. This method is called the "last resort" in the steel industry. The blast furnace maintains its internal temperature above 1500 degrees throughout the year to produce molten iron. In fact, it is difficult to shut down the blast furnace because even after stopping it for one day, the molten iron solidifies, so it will take several months to restart the blast furnace.

After the creation of POSCO, this will be the second time that POSCO will begin to cut production. During the global financial crisis in 2008, POSCO reduced its production of steel products such as hot and cold rolled steel by 570,000 tonnes in two months due to stockpiling and a slowdown in the overall manufacturing industry.

The COVID-19 pandemic has forced global steel producers such as ArcellorM