'Hyundai Steel's investment in U.S. steel mills' is eyed with apprehension

[Korea Financial Times, Gwak Horyung] The news that Hyundai Steel is considering building a steel mill in the United States has raised concerns in the market.

On the 7th, it was reported that Hyundai Steel is considering building a steel plant in the United States to produce steel plates for automobiles. The company is in contact with U.S. government officials in anticipation of strengthening protectionist trade policies following the election of U.S. President Donald Trump. The total investment would reportedly amount to KRW 10 trillion.

In response, Hyundai Steel issued a clarification announcement on the 8th, stating, “We are reviewing various measures to secure sustainable growth and global competitiveness, but no decisions have been made to date.” This does not mean that the company has completely denied the fact that it has reviewed investments.
However, the company's stock price dropped immediately after the market opened and was down over 4.2% as of 2:15 pm. When new investments are announced, it is common for the stock price to rise due to expectations of future profits. At first glance, the strategy of focusing on automotive steel for Hyundai and Kia instead of other steel businesses that are struggling also seems fine. But what is the market worried about?


The biggest question is, “What kind of money does Hyundai Steel have to make such a big investment? As of last year, the amount of borrowings and bonds owed by the company amounted to KRW 10 trillion. The interest expense alone was more than KRW 410 billion. In such a situation, the amount of money earned from the offensive of low-cost steel from China continues to decrease. In the third quarter of last year, Hyundai Steel posted a net loss of KRW 16.2 billion. In the same quarter, the company's cash and cash equivalents were KRW 2.1017 trillion, a declining trend.

Since Hyundai Steel is in a situation where it is difficult to afford the cost estimated to exceed KRW 10 trillion, the observation that this investment is being promoted at the Hyundai Motor Group level is gaining ground. If Hyundai Steel owns a local steel mill in the U.S., Hyundai and Kia products will likely be able to reduce their tariff burden and secure price competitiveness.

Gwak Horyung (horr@fntimes.com)