POSCO tapping into Latin America

By Kang Seung-woo

Korean steel giant POSCO has made huge efforts to secure stable supplies of raw materials in order to boost its self-sufficiency ratio of key commodities to over 50 percent by 2020 under the stewardship of its Chairman Chung Joon-yang.

The latest target is South America.

POSCO said earlier this week it will establish a venture in Colombia to develop iron ore and coal resources in the Latin American state, ensuring a more stable supply of key materials and fortifying its presence in the budding resource-rich region.

Toward that end, the world’s third-largest steelmaker plans to join with Blue Pacific, a Colombian resource developer, this year.

In addition, the Korean company has agreed to partner Colombian auto parts producer Fanalca to manufacture large-diameter steel tubes with an annual capacity of 200,000 tons.

Global demand for steel pipes is expected to reach 200,000 tons in 2015, compared with an estimated 30,000 tons in 2013, as Colombia is involved in a series of oil and natural gas development projects.

“POSCO will provide a springboard for Colombia’s industrial and economic development,” POSCO Chairman Chung said in a statement.

The Pohang-based corporation has been closely monitoring the South American nation as a prospective investment region with its abundant underground resources including iron ore, coal, petroleum and natural gases, as well as recent strengthening public security and stable economic growth.

The Bogota administration and its local companies have demonstrated strong hopes for POSCO’s brisk participation in resource development and infrastructure construction.

Colombia is the fourth-largest economy in Central and South America behind Brazil, Mexico and Argentina, with a population of around 48 million.

Global war to secure materials

Before signing the deal with Colombia, POSCO, along with the Korea Resources Corporation (KORES), struck a memorandum of understanding (MOU) with Bolivia to cooperate in a joint lithium battery project in July after outbidding U.S., French, Japanese and Brazilian rivals, providing an avenue for resource-dependent Korea to access a secure supply of lithium. Under the agreement, POSCO and KORES will set up a task force to form a lithium-ion battery joint venture with Bolivia’s state-run miner, Comibol.

According to POSCO, it was the first time for Bolivia to sign with a foreign company for a joint lithium battery project.

Lithium is a key material in rechargeable batteries used in electric cars, mobile phones, and laptops, and is a resource that can also be used in next-generation nuclear fusion power development.

Many countries around the world are scrambling to secure lithium, as its reserves are forecast to be exhausted within 10 years and Bolivia has more than half of the world’s lithium reserves in the Andes Mountains. A set of competitors, including Brazil and Japan, have been working aggressively to secure larger shares of the South American country’s lithium resources.

POSCO also signed an MOU with Peru’s Li3 Energy, a South America-based lithium explorer, on joint technological and investment cooperation for production and commercialization of the metal.

In November last year, POSCO signed a memorandum of agreement (MOA) with Dongkuk Steel and Brazilian iron ore company Vale to participate in a joint steel plant project, titled “Companhia Siderurgica do Pecem (CSP), in Brazil. According to the MOA, the three companies will build a steel mill to produce plates in the state of Ceara, Brazil.

They are scheduled to complete construction of a furnace with an annual capacity of 3 million tons by 2015 in its first phase. Once the first stage is complete, an additional 3-million-ton scale facility will be built, doubling the overall yearly production capacity.

This mill is the first in which everything from materials to finished steel products are absorbed by its shareholder companies, with Vale providing iron ore, technology support for construction provided by POSCO, and Dongkuk in charge of purchasing slabs, which are the final product.

POSCO and Dongkuk hold 20 percent and 30 percent respectively, while 50 percent belongs to Vale.

“CSP is the ideal collaboration model between Vale, the world’s largest iron ore provider, Dongkuk steel, one of the world’s biggest purchasers of steel slabs, and POSCO with the world`s leading steel mill construction and operation technology. We will develop CSP to grow as the world`s best steel mill based on POSCO’s 40 years of experience and technology,” POSCO Executive Director Park Ki-hong said.

In Mexico, POSCO has decided to expand a continuous galvanizing line plant from the current annual capacity of 400,000 to 900,000 tons with a plan to begin construction in November.