Hyundai Heavy buys into China Steel

Hyundai Heavy Industries (HHI) has reached a preliminary agreement to buy a stake in China’s Qinhuangdao Shouqin Metal Materials. Qinhuangdao Shouqin is a steel making unit jointly owned by China’s Shougang Concord International Enterprises and Shougang Corp.

HHI inked a letter of intent to buy shares in Qinhuangdao Shouqin to secure cheaper steel plates. Detailed investment plans will be released later after further negotiations.

The South Korean Hyundai Heavy has secured record new shipbuilding orders for the past three years, but the company and its two smaller shipbuilding units, Hyundai Mipo Dockyard and unlisted Hyundai Samho Heavy Industries, are having difficulties in securing enough steel plates to meet their orders. HHI, along with its units, consumed 2.7 million tonnes of shipbuilding steel plates last year. Out of the total, HHI purchased 55% of its steel from South Korean steel makers, including Posco, and imported 35% of its requirement from Japanese steel makers. It purchased the remaining 15% of steel from other countries, mainly from China. Once successfully completed, the deal will become the first investment by a South Korean shipbuilder in a Chinese steel company

South Korean shipbuilders have been enjoying a demand boom recently, but profitability has been squeezed by surging steel prices, analysts said. China’s voracious appetite for steel fueled global steel prices until early last year, but the country’s increased production capacity is now pulling down prices worldwide by causing a supply glut, according to analysts. To compete with cheaper Chinese steel, South Korea’s Posco, the world’s fifth-largest steel maker by output, last month decided to cut steel product prices by 4%-17%.