Posted on 11 Aug 2016
As Chinese and Japanese steelmakers are busy growing through mergers and acquisitions, their Korean counterparts appear alienated from the regional scaling-up trend, industry experts say.
According to industry sources, China's Hebei Iron and Steel Group, the world's second-largest steelmaker, is pushing to merge with Shoudu Iron and Steel Works, the ninth largest, to emerge as another "steel dinosaur" with combined steel production of 76.3 million tons, as of last year.
The world's largest steel company is ArcelorMittal, the merger of Arcelor and Mittal in 2006, with annual output of 97.14 million tons. The outputs of ArcelorMittal and Hebei Shoudu (if the merger proves successful) are 2.3 times and 1.8 times larger than that of POSCO, which is fourth largest with 41.97 million tons.
In late June, the Chinese government announced the merger plan of Baoshan Iron and Steel (fifth largest) and Wuhan Steel and Iron (11th largest). The Beijing government reportedly plans to turn the merged company into the "South China Steel Group" and Hebei-Shoudu into the "North China Steel Group."
Japanese steelmakers are not much different.
Nippon Steel (third largest with 46.37 million tons) announced its acquisition of Nissan Steel in February, securing additional capacity of more than 50 million tons. The largest Japanese steelmaker took over Sumitomo Metal in 2012 and has since focused on steel plates for automobiles and steel pipes for the energy industry, increasing its sales by more than 200 billion yen (2.2 trillion won), the sources said.
Experts say the Korean steel industry's restructuring plan appears too passive in comparison.
The restructuring plan, as shown in the interim report recently submitted to the Korea Iron and Steel Association by Boston Consulting Group, focuses on merging small and midsize makers and reducing the output of some items rather than touching on large makers, such as POSCO and Hyundai Steel (13th largest with 20.48 million tons).
The report calls for, among other things, large makers to take over smaller pipe makers whose competitiveness has weakened because of declining domestic demand and slumping exports, and integrating the production of iron rods, which has fallen into crisis faced with Chinese makers' assaults, into the three bases of Incheon, Dangjin and Pohang.
This explains why experts criticize the report as being bent on dissolving supply gluts while failing to present ideas to enhance the industry's global competitive edge.
Some experts call for the industry to consider merging POSCO and Hyundai to compete shoulder to shoulder with global rivals. If it is difficult to push for the immediate merger of the two largest makers, at least they need to focus on their respective product with better competitive advantage, they said.
"If the Korean steelmakers remain passive in restructuring, the center of the industrial gravity will move to China even more rapidly than now," said Professor Kim Chung-shik of Yonsei University. "Sizing up may not be the only answer but the domestic makers can ill afford to waste any more time to recover their weakened competitiveness."
