South Korea blocks shutdowns of blast furnaces: Update

Adds details on potential coking coal market impact

South Korea's national government has stepped in to block orders by three provinces to shut down Posco and Hyundai Steel's blast furnaces over alleged violations of emissions rules, temporarily averting a crippling of output in the world's fifth-largest steel producer.

Seoul's environment ministry asked the governments of Jeonnam, Gyeongbuk and Chungnam provinces to suspend their 10-day shutdown orders, pledging to find a solution to the problem within two to three months. The ministry will form a panel of experts and industry officials to discuss alternatives for addressing the emissions issue.

The provinces may ease their emissions rules if the environment ministry panel finds that mitigation measures will be too difficult.

The provincial orders would have affected blast furnaces at Posco plants in Gwangyang and Pohang and the Hyundai Steel complex in Dangjin. The 12 blast furnaces have combined capacity to produce about 53mn t/yr of crude steel.

The shutdown orders followed local government inspections of South Korean steel mills earlier this year.

The prospect of furnace shutdowns also threatened to slash demand for coking coal and iron ore. South Korea's coking coal imports totalled 2.15mn t last month, up by 19pc from a year earlier.

If provincial governments impose a 10-day shutdown on the Hyundai Steel complex in Dangjin, it could cost the company $600mn-700mn in lost revenue over the estimated three months required to restart the blast furnace, a steelmaker in the region said.

A shutdown at Dangjin would also create uncertainty for 2.4mn t of coking coal that Hyundai Steel would otherwise consume over a three-month period. The steelmaker could potentially declare force majeure on its coking coal contracts and return these volumes to mining firms. If combined with similar shutdowns at nine Posco facilities, as much as 10mn t of coking coal could be returned to producers and potentially find its way into the spot market, putting downward pressure on coking coal prices.