When the government announced a national electricity crisis late last month, following the sudden shutdown of two nuclear reactors, the heaviest burden was immediately placed on the steel industry.

In response to the nationwide energy-saving campaign and in preparation of a possible blackout situation, major companies set up emergency action plans.

The steel industry, which largely contributed to the country’s industrial growth over the past decades, is a massive energy consumer, and accounts for 9.6 percent of Korea’s total electricity use.

Also, according to the Korea Chamber of Commerce and Industry, the industry allocates some 25 percent of its total manufacturing cost to electricity fees, a rate significantly higher than that of the cement industry (22 percent), paper manufacturing industry (16.2 percent) and the textile industry (15.5 percent).
This is why the Ministry of Trade, Industry and Energy repeatedly urged the nation’s major steelmakers such as POSCO, Hyundai Steel, and Dongkuk Steel, to cut down their energy expenditure as much as possible.

“(I demand that) the steel industry, taking almost 10 percent of the nation’s electricity demand, step out actively in the energy-saving measures this summer,” Industry Minister Yoon Sang-jick said at the Day of Steel celebration ceremony on Monday.

Yoon did admit that the sector was already experiencing a business slowdown, caused by excessive supply and decreased demands, but did not ease up on his tone.

“Steelmakers should overcome this crisis through technical innovation and coexistent cooperation,” he said.

Despite the rather vague guidelines of the minister, the Korea Iron and Steel Association, or KOSA, pledged to cut down on general electricity usage during the peak summer season in August by up to 1.06 million kilowatts.

The corresponding figure is similar to the total electricity output of a nuclear reactor in full operation, according to officials.

Almost 40 percent of the energy reduction is attributable to the nation’s biggest steelmaker, POSCO.

Despite its dominant position in the market and size of business, the leading steelmaker remained relatively unfazed by the energy shortage situation.

“We are highly self-sufficient in electricity as we produce some 70 percent of it through our own generators,” said an official.

“As the nation’s industrial frontrunner, we nevertheless felt the need to participate in the government’s campaign and set a model example for other companies.”

The key factor for steel manufacturers is the operation of their electric furnaces, used to liquate scarp iron.

POSCO also possesses several electric furnaces in its manufacturing sites, the largest one being in the stainless production unit in Pohang.

The company first set to reduce the operation hours in the stainless steel units and other electricity-reliant sectors, which is expected to cut down some 130,000 kilowatts.

It will also advance the scheduled repair work on some of its manufacturing facilities so as to stop them from operating in the August peak season, while maximizing in-house generation electricity output.

POSCO aims at saving some 380,000 kilowatts of electricity, which corresponds to the monthly amount for 1 million households, or half of the capacity of the recently suspended Shin-Wolsong Reactor 1, officials said.

Greater concerns, however, are actually raised about Hyundai Steel and Dongkuk Steel, which are heavier users of electric furnaces.

The Hyundai subsidiary paid 800 billion won ($706 million) in electricity fees last year, an amount higher than the company’s accumulated operating profits up to the third quarter.

Though smaller in size, Dongkuk Steel has also faced high electricity bills.

The two companies, however, have been excluded from the government’s critical peak pricing system, which imposes a high rate during peak hours and a discount rate during the rest of the day.

This altered rate is only applied to companies using less than 5,000 kilowatts, but this cutoff line is unrealistic as the operation of a single electric furnace requires tens of thousands of kilowatts, they claimed.

“Despite such difficulties, it has been a longtime practice for the steel industry to fully cooperate with the government’s campaigns,” said a Hyundai Steel official.

“The steel industry, from its very start, has been in close partnership with the government and its long-term economic visions.”

In step with the Industry Ministry’s calls and the KOSA’s pledge, Hyundai Steel came up with a phased action plan, to temporarily shut down its electric furnaces in turn and to implement an extensive energy-saving campaign.

“Seasonal electricity shortages have been an issue for years, so we fortunately have a sufficient level of inventory ready and expect to see little fluctuation in the quarterly sales target,” the official said.

Officials, however, predicted that the worst scenario of a total blackout is not likely to take place.

“The Korea Power Exchange would send out warnings before any critical situation,” said a KOSA official.

“Even under the worst circumstances, the electricity supply for large companies is to be safeguarded up to the last minute, to protect the economy.”

By Bae Hyun-jung (tellme@heraldcorp.com)