Korea's Third Steel City Dangjin Seeks Crisis Zone Status

Dangjin, South Chungcheong Province—one of Korea's three major steel cities alongside Pohang and Gwangyang—is set to be designated as a "preemptive industrial crisis response zone" as early as next month. The crisis in struggling industries such as steel and petrochemicals is spreading like dominoes amid signs of a prolonged U.S.-Iran conflict.

According to the Ministry of Trade, Industry and Energy on the 15th, Dangjin recently submitted an application for designation as a preemptive industrial crisis response zone. Since the government and Dangjin have already reached consensus on the need for such designation and continued related discussions, the actual designation is expected to occur in April. Ulsan, home to petrochemical industrial complexes, has also reportedly submitted a related application to the ministry.

The preemptive industrial crisis response zone is a system operated by the government under the Regional Industrial Crisis Response Act. Designated areas can receive various government support including financial assistance, employment aid, and business consulting. The government previously designated Yeosu, South Jeolla Province, with its petrochemical complex, as the first such zone in May last year. It subsequently designated Seosan in South Chungcheong (petrochemicals), Pohang in North Gyeongsang (steel), and Gwangyang in South Jeolla (steel). If Dangjin is included, all three major steel cities that drove Korea's economic growth will become preemptive industrial crisis response zones.

The government is expanding the preemptive industrial crisis response zones to areas with petrochemical and steel complexes because the crisis in these industries is deepening, affecting both manufacturers within each complex and regional economies. According to South Chungcheong Province, Dangjin's manufacturing output—which includes the Hyundai Steel General Industrial Complex and Dangjin 1 Steel General Industrial Complex—stands at 31.2 trillion won, with the steel industry accounting for 60% (approximately 18.7 trillion won). Additionally, 40% of the approximately 35,800 manufacturing workers in Dangjin are employed in the steel industry.

However, as the steel industry that underpinned the local economy declined—with major Dangjin steel companies posting 66 billion won in losses in the first half of last year alone—Dangjin's corporate local income tax plummeted by more than 90%, from 31.7 billion won in 2022 to 2.8 billion won in 2024. The Dangjin Regional Steel Workers' Union Council said, "Recent domestic and international environmental changes have placed the steel industry in a serious crisis, shaking employment, industrial foundations, and the regional economy. It reminds us of the Hanbo Steel bankruptcy in the past." Hanbo Steel, then Korea's 14th-largest conglomerate, collapsed in 1997 after defaulting on astronomical debts.

The problem is that steel companies' financial difficulties are only intensifying. On the 13th, the Ministry of Climate, Energy and Environment deliberated and approved a "seasonal and time-based electricity rate reform plan" that lowers daytime rates while raising evening rates. The government analyzed that industrial electricity rates could decrease by an average of 1.7 won per kWh. However, some industries such as petrochemicals and steel, which operate factories 24 hours a day, 365 days a year, are concerned that their rates could actually increase. While the 15.4 won per kWh reduction during peak hours applies for 6 hours, the 5.1 won per kWh increase during off-peak hours applies for 10 hours, potentially raising their electricity costs.

Export conditions are also declining. The U.S. government has imposed 50% tariffs on steel products, and the European Union is pursuing regulatory reforms that would significantly reduce tariff-rate quota volumes for imported steel, as countries raise trade barriers on steel. According to the Korea International Trade Association, domestic steel product exports have declined for three consecutive years since 2023, with last year's exports totaling approximately $30.3 billion—a 9% decrease from the previous year.

Whether the Middle East situation becomes prolonged is also expected to be a major variable. While steel has limited direct exposure due to its relatively small share of Middle East trade, a prolonged blockade of the Strait of Hormuz could increase energy cost burdens that determine the steel industry's profitability. Kwon Ji-woo, a researcher at Hanwha Investment & Securities, analyzed, "If the recent rise in international oil prices settles down within three months, it could be positive for industry through price increases. However, if this situation continues for more than six months, structural increases in industrial electricity rates, slowing global demand, and supply pressure from China will materialize."