November 28, 2022

A nationwide “indefinite” trucker strike in South Korea entered its fifth day after the government and trucking unions failed to reach an agreement during early Monday morning talks. The strike, which started last week Thursday, has already affected the logistics of South Korea’s steel industry, the country’s industry ministry stated Friday. However, Hyundai Steel said that the strike was expected, thus they shipped urgent contract volumes and procured raw materials well in advance. That said, they also stated that Thursday’s shipment of steel products could not be moved. Moreover, a prolonged strike could be “problematic” for the company due to limited storage space and logistics. This is the second major trucker strike in South Korea this year. Last June, a trucker strike briefly affected production and shipments for top steelmakers Hyundai Steel and POSCO. (Source: Yonhap, Argus, Reuters)

The US is a large importer of South Korean cold-rolled (CRC) steel products. A prolonged strike could affect US imports of South Korean CRC steel products and could also impact US domestic and import prices of CRC. American consumers of CRC steel can use CME HRC Steel swaps as a proxy hedge for their physical usage. Using swaps converts a variable cost into a fixed cost, thereby ‘locking in’ a price for the hedged steel. Since HRC swaps are thinly traded, we suggest using limit orders to establish a specific steel price. Such positions are standard for consumer hedging, but they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. Please also contact us for further details regarding our correlation analysis of CRC and HRC.  (11/28/2022)

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