Hyundai Steel is considering taking over a specialty steelmaking unit of the troubled Dongbu Group, company officials said.
It is seen as a move by the country's second-biggest steelmaker to counter a growing threat from the POSCO-SeAh Besteel alliance.
"We are interested in buying Dongbu Special Steel," a Hyundai Steel spokesman said Tuesday. "A feasibility study of the deal is underway. Based on its results, we will make a final decision."
Dongbu Special Steel has been up for sale because its debt-ridden parent Dongbu Group is shedding units as part of restructuring programs.
The Korea Development Bank, a major creditor of the group, plans to select a preferred bidder by November to complete the deal by the end of the year.
Hyundai's announcement came only days after Korea's No.1 steelmaker POSCO decided to sell its specialty steelmaking unit to SeAh Besteel, the leading player in this sector with nearly 47 percent of the domestic market share.
SeAh is also seeking to take over Dongbu Special Steel to cement its position as the country's No. 1 specialty steelmaker.
SeAh's merger with POSCO Specialty Steel will create the world's biggest specialty steelmaker by production capacity, analysts said.
Hyundai Steel is pushing forward with a plan to build a specialty steelmaking plant by early 2016 in Asan, South Chungcheong Province, with an annual capacity of 600,000 tons of steel bars and 400,000 tons of wire rods.
Considering that the volume may be enough to meet the demands of the its key customers, Hyundai Steel's move to buy Dongbu Special Steel seems to be intended to better defend itself against the POSCO-SeAh alliance, rather than to have more production capacity.
Many analysts believe that POSCO's decision to sell its specialty steelmaking unit to SeAh was a preemptive move by POSCO, despite expected losses in the short term, to put the brake on what they described as the "ruthless" expansion of Hyundai Steel.
The country's second-biggest steelmaker, an affiliate of Hyundai Motor, is increasingly threatening POSCO's market leadership with sales of products to its sister companies such as Hyundai Motor, Kia Motors and Hyundai Heavy Industries.
Hyundai Steel posted a record high operating margin of 8.6 percent in the second quarter, surpassing POSCO's 7.6 percent for the first time. Hyundai claims this is attributable to a variety of cost-saving campaigns, but analysts believe such success would have been impossible, without stable demand from other units of Hyundai Motor Group.
With Hyundai having fixed buyers of these products used to make auto parts and engines, analysts say, its entry into the specialty steel market could pose a greater threat to POSCO and SeAh.
And this forecast has spawned a negative outlook for the profitability of POSCO Specialty Steel despite its money-making operations ― 1.316 trillion won in sales and 42 billion won in operating profits last year.
POSCO said last week that SeAh Besteel, if merged with its specialty steelmaking affiliate, will become the world's biggest specialty steelmaker. In addition, the deal will give SeAh a stronger market position that will be little affected by Hyundai's entry. POSCO is one of the biggest suppliers of unalloyed steel to SeAh.
Source: Korea Times
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