November 21, 2008

South Korean steel mills urged for consolidation drive

Korean steel industry was advised by the Bank of Korea last week to more actively utilize M&As for the purpose of corporate growth or integration in order to counteract against hiking raw material prices and rapidly rising China.

The Bank of Korea disclosed in a report titled “Steel Industry’s Key Characteristics and Future Tasks” on February 28th 2008 that apart from POSCO, South Korean steel firms lack significantly behind in terms of scale against Top 10 Chinese steel enterprises; individual productivity of China’s Top 10 steel companies all exceeded that of Korea’s second ranking steel maker, Hyundai Steel 10 million tons by 2006 standard.

The report conveyed that the industrial outlook expects four to five global steel corporations with production scale of over 100 million tons to emerge within the next ten years with the integration and size growing trend among steel businesses, which had substantially begun in EU during mid 1990s, being recently spread worldwide to giant steel enterprises.

The report said that boosting corporate scale through M&A not only allows heightened efficiency through economy of scale but is also essential in increasing price negotiation power caused by oligopoly in cars, iron ore and other related industries.

The report asserted that spread of nationalism in nations with resources reserved, export regulations on iron ore and coking coal are being intensified, calling for an urgent need for domestic steel firms to boost size and integrate.

In case of the automobile industry, world’s Top 3 companies had enjoyed market concentration of 35% in 2005 while iron ore firms enjoyed 73% On the other hand, this rate was mere 12.5%for steel industries.