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| Kwon Oh-joon, POSCO Chairman | Lee Soon-hyung, chairman of SeAh Holdings | Park Seung-ha, Hyundai Steel CEO |
By Park Si-soo
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, according to some analysts.
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 percent of the market share, a move widely seen as an effort by POSCO to restore its financial health.
POSCO owns a 72.1 percent stake in the unlisted POSCO Specialty Steel, which is reportedly valued at around 1 trillion won ($974.1 million).
Industry insiders and observers say 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 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, 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 tons of steel bars and 400,000 tons of wire rods.
With Hyundai having fixed buyers of these products used to make auto parts and engines, analysts say, 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 ㅡ 1.316 trillion won in sales and 42 billion won in operating profits last year.
"POSCO's specialty steel business will be hit hardest by Hyundai's entry into the sector because its market position is weaker than SeAh," an industry insider told The Korea Times. "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."
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 unalloyed steel suppliers to SeAh.
POSCO didn't give a concrete reason for its deal with SeAh. The company said in a statement Thursday that the deal will "help bolster competitiveness of domestic specialty steelmakers."
A POSCO spokeswoman underscored the company's position as the country's biggest steelmaker, saying the deal was intended to "reinforce the fundamental health of the (specialty steel) industry" without anything against Hyundai Steel in mind.
"The prolonged slump has hit the bottom line of many Korean specialty steelmakers, including SeAh. As the leading player, we couldn't ignore their hardship," she said.
According to sources, SeAh first expressed willingness to buy POSCO Specialty Steel several months ago. They said the proposal was made in line with SeAh's ambitious plan for making it dominant to the point of not being swayed by Hyundai's challenge.
Separately, SeAh is working to take over Dongbu Special Steel, an affiliate of the troubled Dongbu Group.
"Having multiple (specialty steelmaking) units under one roof will bring significant synergic effects," a SeAh officer said. "This will make it easier for us to overcome the ongoing hardship."
In March, Lee Soon-hyung, chairman of SeAh Holdings that owns SeAh Besteel, openly criticized Hyundai Steel's "ruthless" expansion.
"I can't understand why Hyundai Steel is trying to do everything," he said, referring to the firm's plan to make foray into specialty steel business. "If competing with Hyundai is something unavoidable, we will cope with this in a way we have done trusting our own competitiveness."
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