Posted on 22 Aug 2022
South Korean flats and long products maker Dongkuk Steel Mill has finally escaped from the perennial losses of its coated-sheet subsidiary in East China's Jiangsu province by selling 90% of its stake in Dongkuk Steel China (DKSC) to the Jiangyin city local government for Won 97 billion ($73.6 million), the company has announced.
"Dongkuk Steel judged that the Chinese domestic market, which is mainly based on low-cost general-purpose goods, differs from (our company's) business direction which is oriented towards gentrification such as 'Luxteel,' and it is difficult to secure marketability and profitability in the future," the Seoul-headquartered company said in a statement.
"With this sale, Dongkuk has improved its consolidated profit and loss and eliminated the burden of guaranteeing the payment of borrowings of Won 40 billion (and) expects to be able to improve its external creditworthiness by clearing up its (lossmaking) business," the company said.
Established in 2001 in Jiangyin by Korean coated-sheet maker Union Steel Manufacturing (which Dongkuk acquired in 2015), DKSC has a capacity of 520,000 tonnes/year of hot-dipped galvanized sheet and coil, galvalume sheet and pre-painted sheet. However, during the two decades of its existence, the Jiangyin plant never made a profit, Dongkuk admitted, and its capacity utilization rate never exceeded 50%, Korean sources said.
DKSC always faced tough competition from lower-cost Chinese coated sheet makers, and even the introduction of Dongkuk's high-end, high-spec coated-sheet brand "Luxteel," which incorporates no fewer than six coating layers, failed to differentiate the company from domestic rivals.
Korea's Business Watch daily noted that in 2020, DKSC produced 230,000 tonnes, and though this was a marked improvement on the previous year's 130,000, its parent company Dongkuk had had enough.
In November last year, Dongkuk announced that after selling most of the Jiangyin plant's steel inventory during the July-September quarter, it was halting production entirely and planned to convert the factory into a warehouse.
DKSC sits on the banks of the Yangtze River in Jiangyin and Dongkuk's logistics subsidiary, Intergis, has had a freight forwarding and stevedoring business – Union Logistics Jiangyin Co – operating from there since 2010.
In its statement, Dongkuk said that its stakes in both DKSC and Union Logistics had been sold to the Jiangyin government. Korean news reports suggest negotiations are proceeding to find a buyer for the remaining 10%.
What the plant's future may hold remains unclear. Calls placed by Mysteel Global to the Jiangyin city government and to DKSC went unanswered.
For its part, Dongkuk is presenting its withdrawal from steelmaking in China in a positive light.
"Based on the newly-acquired financial strength and with the demand for high-value colour steel plates rising, the further expansion into highly profitable markets is promoted," the company statement said, pointing out that Dongkuk plans to complete the acquisition of production bases in Vietnam and Mexico this year and to secure additional bases in Oceania, the U.S. and Europe by 2030.
Source:Mysteel Global
