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Steelmakers turn to carmakers to break out of slump

Steelmakers turn to carmakers to break out of slump

Auto-component steelmakers yield highest profits, Hyundai Steel to absorb affiliate’s steel sheet sector

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Published : 2013-12-06 20:13
Updated : 2013-12-06 20:13

A car drives past the Hyundai Steel Co. plant in Dangjin, South Chungcheong Province. (Bloomberg)
While Korea’s steelmaking industry continues to struggle in a prolonged slump, the mid-sized auto-component providers are today’s cream of the crop, benefiting from the flourishing automobile market.

When local steel companies reported on their management performance for the third quarter, the overall sales ranking was unsurprising, with POSCO taking the lead and Hyundai Steel trailing.

The champion in terms of profits, however, was Hyundai Hysco, a subsidiary of Hyundai Motor Group specializing in the production of cold-rolled coil, a key material for automobile steel plates.

The company’s quarterly operating profit growth was 9.63 percent, far exceeding POSCO’s 5.97 percent and Hyundai Steel’s 5.15 percent.

Next in line were SeAH Special Steel and SeAH Besteel, recording 7.07 percent and 6.44 percent, respectively. The two subsidiaries of SeAh Steel Group are doing well with special steel rods and plates used in cars.

Hyundai Hysco and SeAH Besteel were also classified as “Class A” by the Korea Investors Service earlier this year, receiving positive appraisals for their financial stability.

The conspicuous growth of these steelmakers is largely attributable to the prosperity of the automobile industry, according to officials.

“Amid an excess of supply and the rise of low-cost Chinese competitors, it is no longer profitable for steelmakers to settle for conventional products,” said an official of the Korean Iron & Steel Association.

“In order to survive during the market slump, one has to focus on high-value-added sectors such as mega-intensity steel sheets for ships or cold-rolled sheets for cars or electronic goods.”

The Korea International Trade Association predicted, in its recent annual review, that the nation’s shipbuilding and steelmaking industries will continue to suffer next year, while the information technology and automobile industries will thrive.

Accordingly, the market’s second-largest player, Hyundai Steel, is set to take over the automobile steel sheet production sector of its affiliate Hyundai Hysco.

The two companies face a merger after divestiture at the end of this month, based on the group’s plan to create a synergy effect by integrating their steel businesses.

Shortly before the announcement, Hyundai Steel had kicked off the operation of a new blast furnace in Dangjin, South Chungcheong Province, which is expected to fill car-related demand in the future.

Hyundai Hysco’s stock prices, however, faltered after the announcement as it will be handing over the cold-rolled coil business, leaving it with relatively minor sectors such as steel pipes and coils.

Amid an escalating focus on steel sheets for cars, some experts also expressed concerns about the steel industry’s portfolio imbalance.

“Steelmakers, by nature, are largely dependent on other sectors such as shipbuilding, construction and car production,” said an official of the KSA.

“But they will have to come up with sustainable growth strategies in order to survive in the fast-changing global market.”

By Bae Hyun-jung (tellme@heraldcorp.com)

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