POSCO is moving to prevent any further rise of Hyundai Steel, an affiliate of the Hyundai Kia motor group and has found an ally in SeAh Besteel to boost its efforts.
The country’s biggest steelmaker decided last week to sell its specialty steelmaking unit to SeAh Besteel, the leading player in this sector with nearly 47% of the market share, a move widely seen as an effort by POSCO to restore its financial health.
POSCO owns a 72.1% stake in the unlisted POSCO Specialty Steel, which is reportedly valued at around KRW 1 trillion.
Industry insiders and observers said that this was preemptive action by POSCO, despite expected losses in the short term, to put the brake on what they describe 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 brisk sales of products to its family companies such as Hyundai Motor, Kia Motors and Hyundai Heavy Industries.
Hyundai Steel posted a record high operating profitability ratio of 8.6% in the Q2 surpassing POSCO’s 7.6% for the first time.
Hyundai claimed that this is attributable to a variety of cost saving campaigns, but analysts believe such success would have been impossible, amid the prolonged industry-wide slump, without stable demand from its family companies.
Hyundai Steel is making preparations to enter the specialty steel market from early 2016, with an annual production capacity of 600,000 tonnes of steel bars and 400,000 tonnes of wire rods.
Analysts said that with Hyundai having fixed buyers of these products used to make auto parts and engines its entry into the specialty steel market will deal a severe blow to POSCO and SeAh.
And this forecast has spawned a negative outlook for the profitability of POSCO Specialty Steel despite its money-making operations KRW 1.316 trillion in sales and KRW 42 billion in operating profits last year.
An industry insider said that “POSCO’s specialty steel business will be hit hardest by Hyundai’s entry into the sector because its market position is weaker than SeAh. Considering this and other related issues, POSCO seems to have reached the conclusion that selling the specialty steel unit to SeAh is more profitable in the long run than keeping it under its roof.”
Source – Korea Times
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