Hyundai Steel, South Korea's No. 2 steelmaker, said Tuesday that its has halted production of its electric arc furnace plant on South Korea's western coast due to weak demand.

The company, part of Hyundai Motor Group, said some operations were halted at the Danjin Integrated Steelworks, 123 kilometers south of Seoul, starting this week. It said orders have dwindled to near zero for June.

In the past, the steel mill tried to cope with weak sales by scaling back production.

"The COVID-19 outbreak caused a sharp drop in demand," a corporate insider said.

Industry observers said that unless the global pandemic comes under control and there is a rebound in the market, Hyundai Steel and others will have to shutter more operations to reduce costs.

The mill is a major producer of hot rolled steel sheets through either the electric arc or conventional blast furnace. Steel products made by an electric furnace are well known for small profit margins, with electric furnaces returning even less for the manufacturer.

The future of the arc furnace will be decided through consultation with workers.

Before the latest move by Hyundai Steel, the country's largest steelmaker, POSCO, as well as Dongbu Steel, stopped electric furnace operation in the face of weak demand. (Yonhap)