As an aggressive solution to a prolonged market slump, Hyundai Steel chose to further expand its manufacturing facilities and to specialize in steel for high-value-added automobile parts.
The decision of the nation’s second-largest steelmaker boosted the expectations that the long-stagnant steel industry may once again gain momentum, but also raised concerns about excess supply and competition.
On Sept. 13, the steelmaker affiliated with Hyundai Motor Group held the opening ceremony for its third blast furnace in Dangjin, South Chungcheong Province.
The new furnace is to produce some 12 million tons of crude steel per year, among which 4 million tons will be used to build steel sheets for premium automobiles of Hyundai Motor and Kia Motors, according to officials.
|Hyundai Steel employees work at its third blast furnace in Dangjin, South Chungcheong Province, which was launched on Sept. 14. (Hyundai Steel)|
This is expected to strengthen the vertical integration of the conglomerate as half of the automobile-related steel will be sold to Hyundai Hysco, the company’s affiliate specializing in special-purpose steel sheets and cold-rolled coil.
“Once the third furnace reaches its full production capacity level next year, our supply rate of auto steel sheets to Hyundai Motor and Kia Motors will jump up to 70 percent, or 4.9 million tons per year,” said Cho Won-suk, Hyundai Steel’s vice president in charge of technical research.
The ultimate goal is to localize the production of high-purity special steel wire rods, which are used to make screws for automobiles, electronic goods and construction material, he added.
The new furnace also helped Hyundai Steel become the world’s 11th-largest steelmaker, with only a marginal distance to becoming the 10th-largest ― a significant leap from 31st in 2006.
Despite the promising scenario, however, the company is still faced with the problem of supply-demand imbalance.
Currently, the world’s steel industry has a total production capacity of about 2 billion tons, but 500 million tons are surplus, due to the global economic slump and oversupply.
Local companies, too, have experienced sales decreases over recent years but nevertheless set out to expand their facilities in a push for a breakthrough.
The nation’s top player POSCO rounded off the maintenance of its 4.2 million-ton capacity blast furnace in Gwangyang, South Jeolla Province, and kicked off commercial operation in June. It is also continuing to build new overseas manufacturing sites throughout Asia.
As POSCO, too, provides steel raw material to carmakers and steel processing companies, it is expected to clash with Hyundai Steel in the market.
Seah Besteel, a runner-up specializing in special steel, is also resolved to safeguard its market share against Hyundai Steel.
“We are aware that the newly kicked-off furnace poses a challenge to our supply and demand management,” said a Hyundai Steel official.
“It is, however, vital that we aggressively respond to the current market crisis and create new business sectors.”
Steel processing companies such as Seah Special Steel and Dongbu Special Steel, on the other hand, showed positive responses to Hyundai Steel’s decision.
“We currently purchase 70 percent of steel raw material from POSCO and import the remaining 30 percent from Japan,” said an official of Seah Special Steel.
“When Hyundai Steel starts manufacturing special steel, this will mean a wider variety of supplier resources and hopefully the possibility of cost-saving for us.”
By Bae Hyun-jung (firstname.lastname@example.org)