U.S. plans to impose tariffs on all imported steel will be particularly painful for Korean steelmakers. The entities have long relied on a tariff exemption--up to a quota--on their U.S. sales. S&P Global Ratings believes the end of the exemption will likely hurt Korean entities' performance more than regional peers that have benefited less from this concession.
What's Happening
On Feb. 10, 2025, the U.S. government announced a 25% tariff on global steel imports while eliminating country exceptions and quota deals. Korean steelmakers had previously been exempted from tariffs in their U.S. sales, up to a combined annual quota of around 2.6 million tons.
Why It Matters
The tariff will likely hurt Posco and Hyundai Steel Co. While these companies' U.S. trade makes up a low single digit percentage of total volumes, these exports have higher prices and are more profitable than much of the firms' other exported products.
The loss of such high-margin exports will be a pain point for Posco Holdings Inc. The firm's debt has materially risen due to high capital expenditure stemming from expansion within the electric vehicle battery-material segment.
The additional hit from tariffs will generally squeeze Korean steelmakers' rating headroom. Should the tariffs be fully enacted as announced, we estimate they will likely cut the revenue of the entities by a low-to-mid single percent and reduce operating profits by a mid-to-high single percent.
Chart 1
What Comes Next
The tariffs would strain Korean steelmakers at a vulnerable moment. Conditions in the Korean steel sector remain challenging with weak demand and continued oversupply, largely stemming from ample output from China. Steel spreads have weakened as prices have dropped, leading to lower profitability. The announced tariffs pose as an additional obstacle to the recovery prospects of Korean steelmakers.
Conditions have contributed to a substantial increase in leverage for Posco and Hyundai Steel.
The magnitude of the impact of the tariffs will depend on implementation. Policies can change quickly with the current U.S. administration, in our view. The exact rate of tariff, or the U.S. stance on exemption quotas for Korean producers, may change prior to the enactment date.
There is also the possibility that the U.S. domestic steel prices will rise further in response to the tariffs; U.S. domestic steel prices have climbed 10%-15% since the Canada/Mexico tariff announcements. Moreover, the new measures may allow Korea to sell certain steel products to the U.S. that were previously subject to strict import limits.
However, we believe that the announcement poses greater downside risk for the Korean steelmakers.
Background In Brief
Korean steelmakers have a larger exposure to the U.S. compared with regional peers. According to the U.S. Department of Commerce, as of 2024 Korean steel constituted about 10% of U.S. steel imports, which is larger than the contribution from China (2%) and Japan (4%).
Moreover, Korean steel exports to other countries such as Mexico partially end up in the U.S., and the pending tariffs are likely to have an impact on this portion as well. Also, the price increase caused by tariffs imposition may hit steel demand in the U.S.
Editor's note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: https://www.spglobal.com/ratings \t _blank \o https://www.spglobal.com/ratings).
This report does not constitute a rating action.
| Primary Credit Analyst: | Ji Cheong, Hong Kong +852 25333505; ji.cheong@spglobal.com |
| Secondary Contact: | JunHong Park, Hong Kong + 852 2533 3538; junhong.park@spglobal.com |
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