[Scrap War]①
Scrap Dealers: "Deals End Before Market Even Opens"
Steelmakers: "Unfounded... Purchases Made Through Bidding"
Fair Trade Commission: "Opportunity Denied... Possible Unfair Trade Practices"
A fierce scrap metal (steel scrap) war is raging in the steel industry. Among steel processing companies, there are rumors that POSCO and Hyundai Steel are telling customers to "return leftover scrap" when selling steel products. Small and medium scrap dealers who make a living by collecting and selling scrap are protesting, saying that large corporations are ruining the market. POSCO and Hyundai Steel deny these claims.
An official from a steel processing company that is a POSCO customer said, "Around last year, the person in charge of scrap metal purchasing at POSCO International started saying that they would pay well and asked us to return the pig iron generated during hot rolling processing." He explained, "They do not send official documents, but communicate verbally over the phone." Pig iron is a type of residue produced during the cutting and processing of hot-rolled steel sheets. More than 10% of hot-rolled steel sheets turn into pig iron during processing. Pig iron without impurities is considered the highest quality scrap.
This year, POSCO reportedly dispatched marketing department team leaders and some staff to POSCO International to secure scrap metal. A processing company official said, "Although it is not mandatory, the only companies in Korea that can produce hot-rolled steel are POSCO and Hyundai Steel, which own blast furnaces, so it is not easy to refuse their requests." POSCO is preparing to install an electric furnace at its Gwangyang Steelworks, increasing its need for scrap metal.
Hyundai Steel is also increasing scrap collection from small and medium-sized companies. As Korea's largest electric furnace steelmaker, Hyundai Steel has been receiving scrap from Hyundai Motor Group's vertically integrated strategy, taking scrap from Hyundai and Kia factories. Recently, it has been expanding its suppliers by presenting return conditions to Hyundai Motor's first- and second-tier suppliers.
Originally, the scrap market was structured so that small and medium scrap dealers bought scrap from processing companies and supplied it to steelmakers like POSCO. If POSCO and Hyundai Steel collect scrap directly, the market space for small and medium scrap dealers shrinks. Steelmakers are rushing to secure scrap by changing existing transaction methods to achieve the global goal of carbon neutrality. Recently, steelmakers have started operating electric furnaces simultaneously. Electric furnaces are a transitional solution for steelmakers to achieve carbon neutrality. Electric furnaces melt scrap to produce molten steel. They can reduce carbon emissions by 75-80% compared to traditional blast furnaces, which mainly use coal.
As demand for scrap increases and steelmakers actively start collecting scrap, small and medium scrap dealers are protesting. An industry insider said, "Large corporations are subtly entering the scrap market by exploiting their monopolistic position over companies that have no choice but to buy hot-rolled steel," adding, "Competing with large corporations on price is like telling us to die." He continued, "If it were market logic, they should at least compete by offering better prices, but transactions end before scrap even reaches the market, which contradicts market logic."
Scrap dealers are protesting, saying that existing clients are being shaken due to the market dominance of large corporations. One scrap dealer CEO said, "We have been trading with a company that generates 1,000 tons of scrap monthly for over 10 years, but suddenly they inquired about contract termination and advance payment recovery." Another scrap dealer CEO said, "A company with several hundred million won in advance payments suddenly said they would change suppliers."
POSCO International and Hyundai Steel have denied industry complaints that they are using market dominance to gather scrap. They stated that "scrap is purchased through a bidding process." A POSCO official said, "The claim that contracts are made on the condition of scrap return is groundless."
In this regard, government authorities have stated that they need to review detailed contract terms and determine whether there is any unfairness. A Fair Trade Commission official in charge of manufacturing cartel investigations said, "If companies with market dominance like POSCO and Hyundai Steel purchase scrap before it is released to the market, depriving other companies of the opportunity to buy, it could be considered unfair trade."
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