Expanding or Slimming?

POSCO-produced rolled steel.
POSCO-produced rolled steel.

 

There are two extremely different stances of steel companies which are suffering from the industry recession. Hyundai Steel and the Seah Group are expanding business, while POSCO, Dongkuk Steel Mill, and Dongbu Steel are trying to come up with survival strategies through restructuring.

According to sources in the industry on Sept. 15, Hyundai Steel and the Seah Group are enhancing their specialty steel businesses for automobile materials.

Hyundai Steel is interested in acquiring Dongbu Special Steel, and is building a 1 million ton special steel factory inside Dangjin steel mill in Chungnam. If this factory starts mass production on schedule in February 2016, 600,000 tons of bar steel and 400,000 ton of wire rods can additionally be manufactured. In addition, Hyundai Steel plans to add the second continuous galvanizing line (2CGL) which is capable of producing 500,000 tons annually at the second cold rolled mill of Dangjin Steel Mill, with an investment of 129.5 billion won (US$125.3 million).

The Seah Group signed an MOU with POSCO to acquire POSCO Specialty Steel. With this acquisition, Seah Besteel, an affiliate company of the Seah Group, will become the world’s largest special steel company with the existing production facility of 3 million tons of carbon alloy bar steel and a 1 million ton stainless wire rod production facility of POSCO Specialty Steel. The entire production capacity will be around 4 million tons.

On the contrary, POSCO, Dongkuk Steel Mill, and Dongbu Steel are slimming down. They are tightly reforming financial structures through selling off or merging their minor affiliate companies.

POSCO decided to sell some of its equity in Gwangyang LNG terminal along with Posfine, the urban mine department of POSCO M-Tech, POS-HiAL, and POSCO-Uruguay. POSCO started selling off three department stores owned by Daewoo International and POSCO Specialty Steel last month. POSCO is also very busy merging its minor affiliates. POSCO determined at the regular board meeting on Sept. 8 to change the business structure in a way that POSCO P&S manages and controls distribution and processing of steel and Posmate does B2B work.

Dongkuk Steel Mill, which entered into the financial restructuring contract with Korea Development Bank (KDB), is considering an M&A with its affiliate company Union Steel.

An associate in the steel industry said, “It is very hard for the steel industry to maintain growth, as sales revenues and operating profits are dropping due to an economic recession caused from the global financial crisis and intense competition with major emerging countries including China. In order to overcome this situation, some companies are aggressively engaged in investments and some others are executing restructuring as realistic self disciplinary actions. Depending on the characteristics, each company is choosing one option and focusing on it.”

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