[NOTEBOOK]A Battleline Has Been Drawn on Steel

Hyundai Hysco's steel cold rolling plant and Pohang Iron & Steel Co.'s Gwangyang steel mill are both located at Gwangyang Bay in South Cholla province. They are just 30 kilometers apart, 30 to 40 minutes' drive. The Pohang plant produces hot-rolled coils that are further processed into cold-rolled steel plates for automobiles. Hot-rolled coils are a basic steel product, and it is well known that the Gwangyang mill is a world-class manufacturer of the coils.

Nevertheless, the Hyundai plant cannot buy a single ton of hot-rolled coils from the neighboring Gwangyang mill. The Hysco plant, which produces 1.8 million tons of cold rolled plates a year, needs 1.9 million tons of hot rolled coils annually and imports all its requirements. Eighty to 85 percent of the imports come from Japan, and the rest from China, the Republic of South Africa, Russia and some South American countries.

Hit by the global economic slump, the import price for hot rolled coils tumbled below $200 per ton in the third quarter from $205 in the second quarter. Still, Hysco's import price tops $200 a ton, including $16 to $18 per ton of duty and freight charges. The biggest problem for Hyundai is that foreign suppliers are well aware of the company's complete dependence on imported hot rolled coils. Some Japanese exporters sell a ton of the same products for as low as $160 to $170 a ton to other buyers.

Currently, the global steel industry is suffering from a severe slump. Global production is around 1 billion tons annually, exceeding consumption by 200 million tons. Steel prices are at their lowest level in 20 years. Global steel makers are scrambling to cut prices to attract buyers but are not interested in discounting prices offered to Hyundai Hysco.

Hyundai wants Pohang Iron & Steel to supply only 200,000 to 300,000 tons a year. Hyundai believes that could give it the upper hand in negotiating import prices for the rest of its needs. Pohang officials say it will never do so. Just like Coca-Cola does not sell its formulation for its soft drinks to other companies, Pohang wants no more domestic competition in cold-rolled steel. It did good business selling cold-rolled steel plate to Hyundai's car manufacturing operations until Hysco entered the business, creating even more excess production facilities and damaging Pohang's business. Why, the company asks, should it give a major competitor a hand?

Pohang does have problems. The world's largest steel maker produces hot-rolled coils and cold-rolled plates. It suffered a severe blow in 1999 when Hyundai Hysco, then a steel pipe manufacturer, began to produce cold-rolled plates. Hyundai Motor Co. and its subsidiary, Kia Motors Corp., then began to purchase cold-rolled plates from their affiliate, Hyundai Hysco, and Pohang saw its sales of the products plunge by half, or about 500,000 tons. Hurriedly, Pohang tried to find other foreign carmakers to buy its products, but that has been difficult in the global economic slowdown.

The dispute between Hyundai Hysco and Pohang over the supply of hot-rolled coils has escalated to a legal battle, and the initial trial is under way. Japanese steel manufacturers are reaping a windfall. Korea shipped $7.2 billion worth of steel products overseas during the first six months of this year and imported $5.8 billion won, but ran a deficit of $200 million in its steel trade with Japan.

Because the dispute involves two giant industrial companies, other steel companies are fearful to jump in. They do not want to risk the enmity of either firm by taking sides. The government also finds it difficult to intervene for fear of an international trade dispute. It is a blot on the local steel industry that the companies took this issue to court.

The global steel industry is in a life-and-death struggle for survival. In Europe, France's Usino SA, Luxembourg's Arbed SA and Spain's Aceralia are negotiating a merger. It is not time for the local steel makers to be engaged in a domestic battle. The top managers of the two companies should sit together to resolve the dispute.

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The writer is a deputy industrial news editor of the JoongAng Ilbo.

by Min Byong-kwan