Will Hyundai Steel Meet Expectations in Market of Specialty Steel for Automobiles?

Posted on 07 July 2017

Source: Business Korea

Hyundai Steel, which entered the business of specialty steel for automobiles to supply specialty steel to Hyundai Motor and Kia Motors in 2015, will enter full-scale commercial production of some types of steel. As mass-production of special steel is delayed, the market is becoming more skeptical about whether or not the quality of special steel will meet market expectations.

According to the steel industry on July 4, Hyundai Steel will commence commercial production of some special steel bars verified by the Hyundai Motor Group’s ISIR quality certification. “In order to supply parts to the Hyundai-Kia Automotive Group, ISIR certification should be conducted on thousands of steel grades,” a Hyundai Steel official said. “We will begin to roll out products as soon as they are certified.”

The Hyundai Automotive Group has been procuring special steel directly or indirectly from domestic and overseas specialty steel producers such as SeAH Besteel. However, Hyundai Steel said that the company will directly produce these special steel products for automobiles. Therefore, it was pointed out in the steel industry that Hyundai Steel should expand into the global market, not being complacent with a few stable corporate customers. This is because the proportion of Hyundai Steel’s sales to the Hyundai Automotive Group stands at 20% and accordingly, if Hyundai Motor and Kia Motors suffer from sluggish sales, it will pull down Hyundai Steel’s profits.

Due to this structure, Hyundai Steel has publicly announced that the steelmaker will reduce its dependence on the group by diversifying buyers of its steel plates for automobiles. However, it is pointed out that the meaning of Hyundai Steel’s external promise faded as the company made a foray into the market of specialty steel for automobiles.

In fact, Hyundai Steel had a proper reason to raise prices of steel plates for automobiles due to a rise in prices of iron ore used to make melted iron. But the steelmaker did not shift the burden of the rise in prices of iron ore onto Hyundai and Kia. As a result, in the first quarter of this year, its operating profit margin hit 7.6%, down 0.7 percentage points from the previous quarter. This is in a contrast to other steelmakers that raised prices of steel plates for global automakers. Hyundai Steel had to be satisfied with an increase of 60,000 won (US$54) which is about half an originally planned increase of 130,000 won (US$117) per ton after four months of price negotiations.

The certification of Hyundai Steel’s automotive specialty steel is being delayed, causing industry experts have questions about why. Hyundai Steel announced that the company will finalize the certification of its major specialty steel products by the end of last year. However, as the certification has been delayed, some industry watchers pointed out that this was probably because Hyundai Steel’s products failed to satisfy Hyundai and Kia which are picky corporate customers. 

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