Korean steelmakers downsize China operations amid intensifying competition

Hyundai Steel, the steel affiliate of Hyundai Motor Group, has decided to sell its Beijing entity, crushed by a net loss of over 100 billion won ($70 million) over the past five years, according to market watchers, Thursday.

The rapid losses of Hyundai’s China entity, Hyundai Beijing Steel Process, which marked a net loss of 49.6 billion won in 2021, was in line with the declining Chinese market presence of Hyundai Motor and its sister firm Kia, the major buyers of the steel affiliate’s products.

Hyundai Steel is among many leading local steel manufacturers downsizing their Chinese operations in recent years.

POSCO, Korea’s steel titan, sold its stakes in Continuous Galvanizing Line (CGL), its automotive steel sheet manufacturing entity in Guangdong, to a joint entity it set up with a Chinese steelmaker.

Similarly, Dongkuk Steel sold 90 percent of its stake in Dongkuk Steel China last year to a local government in China.

The recent poor performance of local steel firms is explained in part by China’s fortified capability to produce a variety of steel materials at a lower price underpinned by advanced technology. This is why market watchers say growth prospects for top local steel firms will dim in the years to come, exacerbated further by an increase in imports of cheap China-made steel to Korea.

Hyundai Steel established its Beijing entity near the manufacturing plants of Hyundai Motor and Kia in the city in 2002, to supply automotive steel sheets to the carmakers.

It maintained a solid operating profit of between 10 billion won and 20 billion through 2016, but it began to crash in 2017, brought on and sustained by the politically and diplomatically charged conflict between Korea and China over the U.S.’ deployment of a Terminal High Altitude Area Defense (THAAD) system in Korea.

Further fueling the five consecutive years of net losses was Hyundai Motor’s diminishing market share. The figure came to 3.4 percent in 2018, but it shrank to 1.8 percent in 2021.

It slid further to 1.2 percent in the first nine months of last year.

The Hyundai steel affiliate’s business in Tianjin is dwindling.

The net loss registered by the Tianjin entity came to 28.2 billion won last year, a further increase from 20.3 billion won in 2021. Its net loss between 2017 and 2022 amounted to 114.6 billion won.
Source: The Korea Times