Hyundai Steel plans merger with Hysco to reduce costs and enhance competitiveness

South Korea's second-largest steel manufacturer Hyundai Steel has said, they were planning merger with Hyundai Hysco to take over the latter's core rolled and coated sheets business, which intended to reduce financial costs and improve profitability. Hyundai Steel is expected to complete the merger in December 31 of this year, Hysco will hold Shareholders' meeting on November 29 this year to discuss the merger decision.

The face of the European debt crisis and the slowdown in Chinese demand for steel, Hyundai Steel etc. the world's major steel mills is in the plight of declining profits. The merger will reduce the financial cost of Hyundai Steel and improve competitiveness with other companies. Beacuse merger will produce a more powerful company, to Posco and Dongkuk is not a small pressure, especially in the domestic cold-rolled capacity oversupply and too little demand of market conditions. Currently, Korea POSCO, Dongbu Steel and Hyundai Hysco annual supply of cold rolled coils plus imports totaled about 21 million tons, while domestic demand only about 12 million tons.

As Hyundai Motor Group's two subsidiaries of steel, Hyundai Steel sells hot-rolled coils to Hysco, Hysco processed into automotive sheet then sold to their parent company Hyundai Motor Group. This Hyundai Steel and Hyundai Hysco to provide end supply chain for automotive manufacturers is unique in the world.

Hyundai Steel production the third annual capacity of 4 million tons of blast furnace in September, steel production increased significantly. 3 blast furnace of crude steel production capacity is 12 million tons, including 12 million tons of electric furnace steel production capacity, Hyundai Steel Total crude steel production capacity is 24 million tons. After the merger, Hyundai steel sales expected to grow from last year's 14 trillion won to 20 trillion won, at the same time also reduce financial costs. According to report, for the construction of the third blast furnaces to make Hyundai steel liabilities of approximately 11 trillion won ($ 10.3 billion), who had to pay about 300 billion won of interest a year.

Hysco Founded in 1975, annual production capacity of cold-rolled is 6.2 million tons, cold-rolled steel sales accounted for sales of 71% last year, about 7 trillion won, 91% of its operating profit. Hysco cold rolled coils and coated steel equipment is located in Hyundai Karatsu factory, the cold rolling, coating and cutting equipment is located near POSCO Gwangyang plant. Hysco had gone into operation annual production capacity of 1.5 million tons cold rolling equipment in Karatsu plant in May this year, this year cold-rolled and coated sheets of production is expected to increase from 4.26 million tons in 2012 to 4.8 million tons, desired ratio of Hyundai Motor Group can increase from the current 40% to 60%.

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August Japan export 3.727 million tons of steel, increased 2.4% qoq

Japan Iron and Steel Federation (JISF) released the latest data show, August 2013, Japan's steel export 3,727,000 tons, exports is 3.547 billion dollars, about 349.3 billion yen. Compared to last year, steel exports increased 1.3%, exports fell 10.8% in U.S. dollars, for 15 consecutive months of decline; Growth of 11.9% in Japanese yen, for three consecutive months of growth. Compared with July, steel exports grew 2.4% and exports increased 0.6% in U.S. dollars, an increase of 0.2% in Japanese yen.

According JISF statistics, August Japanese ordinary steel exports 2,435,000 tons, 1.9% qoq.

Look from the varieties of steel, hot rolled coil export of 1.007 million tons, up by 14.1%, qoq 6.1% for 18 consecutive months higher than the level a year earlier; Welded steel pipe export 79,000 tons, up by 45.8%, 31.8% qoq, four months for the first time higher than a year ago; Electrical steel export volume of 67,000 tons, an increase of 6.9%, reduced 0.7% qoq, two months for the first time higher than a year ago; Wire rod export 62,000 tons, up by 29.8%, qoq 16.9%, 9 consecutive months higher than year-ago levels; Steel bars export 29,000 tons, an increase of 11.4%, reduced 24.9% qoq, four months for the first time higher than a year ago; Galvanized steel export volume is 373,000 tons, representing a decrease of 9.7%, qoq 7.9%, for four consecutive months below the level of last year; Cold rolled steel export 264,000 tons, representing a decrease of 13.3%, 0.2% qoq, for three consecutive months below the level of last year; Plate export 257,000 tons, reduced 15.1%, decreased 6.9% qoq, for seventh consecutive month below the level of last year; Steel section export 70,000 tons, reduced 11.9 percent year on year, decreased 34.3% qoq, two months for the first time below the level of last year; Seamless steel pipe export 53,000 tons, down 7.5 percent year on year, decreased 8.4 percent qoq, three months the first time lower than the level of last year.

Look from the exporting countries, Japan exports to South Korea 673,000 tons, ranking the first, drop 3.6 percent; Japan export to China 500,000 tons, drop 5.2 percent, four consecutive months below the level of last year; Exported to Thailand 496,000 tons, up 1.5%, two months the first time higher than the same period of last year; Exported to Taiwan 312,000 tons, up 5.0%, 3 consecutive months higher than year-ago levels; Exported to American 237,000 tons, up 27.4 percent, higher than the same period last year for two consecutive months.

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Worldsteel: Global steel consumption will increase 3.1% in this year

Recently Worldsteel released this year of global steel short-term demand prospect, expected global steel consumption increase 3.1%, reached 1.475 billion tons, 2014 will increase 3.3 %, reaching 1.523 billion tons.

Hans Jurgen Kerkhoff, who is responsible for economic research in Worldsteel said, the main risk of the global economy is euro zone debt crisis and China's economic hard landing problems, however, recently the recovery of crisis in good shape. Major emerging economies, especially India and Brazil, the performance is not satisfactory due to structural problem, these factors have led to the slow increase in global demand for steel. This year Chinese steel demand will increase 6.0%, rest of the world will increase only 0.7%, global steel demand will increase 3.1% this year.

Worldsteel expects, 2014 global steel demand will continue to show recovery trend, developed countries will grow, while China's growth momentum will slow down.

Despite the developed countries getting away from the risk, developing countries of structural problems, political instability and volatility in financial markets is still uncertainty. Overall, the global economic situation in the steel industry remains unstable, however, we expect 2014 steel demand will grow further.

China: Following the 2012 steel consumption increased 2.9%, this year will increase 6.0% to reach 699.7 million tons, which is mainly benefited from government infrastructure stimulus. However, government limit investment, 2014 steel demand growth is expected to slow to 3.0%.

India: last year increased 2.6%, the consumption of steel is expected to increase 3.4% this year, reaching 74 million tons, India's high inflation pressures and structural problems limit the steel sector activities. India government to expedite the implementation of structural reforms, steel demand is expected to increase 5.6% in 2014.

Japan: The economic situation has improved, government stimulus will boost steel demand growth of 0.1% in this year to reach 64 million tons. However, 2014 outlook is not optimistic, due to the presence of new consumption taxes, manufacturing outward migration and energy prices rising too fast of problems, steel demand is expected to drop 1.6 percent next year.

United States: Following last year's increase of 7.8%, this year the steel consumption will increase only 0.7%, reaching 96.9 million tons. Benefited from the global economy to improve, automotive, energy and residential construction sector activity increased, steel demand will increase 3.0% in 2014.

EU: in particular the first half of this year, steel sector activity continued to contract, steel consumption this year is expected to drop 3.8%, reduced to 135 million tons. Italy and Spain were respectively reduced 8.1% and 4.3%, reduced 1.6% in Germany. 2014 outlook is hopefulness, but the EU overall steel demand remains poor, next year will increase only 2.1 percent, to 138 million tons.

Middle East and North Africa: Due to continued political unrest, this year steel demand slowed to 1.7%, reaching 64.3 million tons. In the effect of the re-start investment projects and government efforts to combat social unrest, steel demand is expected to increase 7.3% in 2014, reaching 69 million tons.

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Analysis of Chinese steel exports to ASEAN

ASEAN market demand for steel strong, but due to the local iron and steel industry is weak, the ASEAN countries mainly rely on imports to meet demand of steel. 2012, ASEAN surpass South Korea to become China's largest steel exporter.

2013 January-July Chinese steel exports to ASEAN situation

Latest Customs statistics show, 2013 January-July, China's steel exports mainly flow to Korea and ASEAN countries, China's steel export volume of the top ten countries, ASEAN countries accounted for 6, South Korea is still ranked first.

In the first seven months, China's steel exports reached 35.84 million tons, an increase of 13.7%. In which ASEAN exports of steel totally reached 9.58 million tons, an increase of 34 %, accounted for 26.73% of China's total steel exports. Apart from January, Chinese steel exports to ASEAN monthly volume more than 1 million tons. Which in March due to seasonal factors export reached 1,789,200 tons, then export volumes declined. July, ASEAN exports to China of steel capacity fell to 1.167 million tons.

Look from the National, Vietnam as 2.15 million tons of total amount exceed Thailand to become China's largest steel exporter in ASEAN. Followed by Thailand and Singapore, Chinese steel imports are 1.5 million tons or more. While the number of steel exports to Indonesia, Philippines and Malaysia are exceeded one million tons. The number of steel export to these 6 countries accounted for 92.6% of total steel exports to ASEAN.

Analysis of Chinese steel variety exports to ASEAN

Chinese steel exports to the ASEAN still dominated by sheet, followed by the wire rod, angle profiles and tubes. Specifically, China exported 3.89 million tons of plates to ASEAN, accounted for 40.61% of total steel; exports of wire rod is3.41 million tons, accounting for 35.61 percent; Exports of angle profiles and tubes were 1.04 million tons and 80 million tons, accounting for 10.89 % and 8.38% of total exports.

Major countries of ASEAN steel market situation

Currently, the ASEAN countries of the steel market are still in short supply. 2011, six major ASEAN member states Vietnam, Malaysia, Thailand, Indonesia, the Philippines and Singapore of crude steel production reached 20.65 million tons, an increase of 5%, which the year's steel consumption rose to 54 million tons, an increase of 7%.

ASEAN steel consumption increased primarily from rapid growth in imports. 2012, ASEAN steel imports rose 8 percent to 36.9 million tons, of which more than 80% of imported steel use for construction and shipbuilding industries. Japan, China, Korea and Taiwan is still the main importing countries of ASEAN steel market.

In 2010, with China - ASEAN Free Trade Area officially launched China and 10 ASEAN countries started to enter the era of zero tariffs, which making Chinese exports to ASEAN of steel varieties increase sharply. In ASEAN total steel imports, the proportion of Chinese products increased year by year. 2009, China's total imports of steel in the ASEAN accounted for only 10%, in 2010 this proportion rose to 17%, and in 2011 further increased to 23%, making China to be ASEAN's second largest steel importer.

South East Asia Iron and Steel Institute (SEAISI) data show, 2012, ASEAN imports longs from China soared more than 2 times of the number. China, as ASEAN's largest profiles importing country, the number of profiles exports to ASEAN increased 70% last year. The wire rod imports from China also rising more than twice to 100 million tons. The main importer of hot-rolled sheet is China, but last year the number of hot-rolled plates only rose 3 percent, maintained at 100 million tons.

In recent years, the construction industry of ASEAN countries is rapidly develop, the increasing demand for building materials and the market potential is huge. In which proportion of steel consumption in the Philippines reaches 81%, Malaysia and Singapore are also accounted for more than 70%.

Steel trade friction between ASEAN and China to upgrade

ASEAN officially surpass South Korea last year, becoming China's largest steel export zones. At the same time, ASEAN is also changed to major sponsors for the Chinese steel products trade remedy investigations. In the context of the global economic downturn, the national steel demand reduced and excess supply. In order to protect the profit of domestic steel industry, since 2013, the ASEAN countries against China initiated steel trade protection measures intensified.

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Chinese iron ore imports continue to rise, Korea and Japan lack of resources

World iron ore trade formed by Australia, Brazil, India to China, Japan, the EU etc. countries and regions of transportation pattern.

Japan, South Korea, Britain, Italy etc. major steel producing countries completely depend on imports of iron ore; China due to the scale of steel production more than its own iron ore resources offer, which need to import large quantities; Russia's domestic iron ore supply and demand is balance; Brazil, India and Australia's iron ore not only can meet the domestic demand, but also be a large number of exports.

In recent years, China's iron ore imports continue to rise, 2012 imports accounted for 67.9 percent of global total imports.

Japan lack of domestic resources, the use of iron ore basically depends on imported. Prior to 2003, Japan's imports of iron ore volume ranked first in the world, to 2003 by China exceeded. Japan's imports of iron ore mainly from Australia and Brazil, some steel companies in Japan, such as Nippon Steel and JFE Holdings Group, for the protection of stable sources of iron ore, in these two countries have invested accordingly mines.

South Korea’s iron ore resource is also relatively poor, over 99% of import dependence. South Korea’s iron ore imports in recent years is relatively stable, 2011 imports about 65 million tons. South Korean imports of iron ore mainly come from Australia and Brazil, where ore from Australia accounted for 50% or more.

Major European countries, Western Europe imports more than 100 million tons of iron ore, which ranking high in the world. Western Europe is a major importer of iron ore in Germany. 2000-2011 iron ore imports in Western Europe overall show downward trend, but large differences between countries, in which the Netherlands increased considerably. From the proportion of global imports observed, imports of 15 European countries continued to decline, especially in 2009 the most serious.

Australia is a major producer of iron ore, iron ore mined mostly for its exports, in recent years, its production and exports continue to increasing. Australian iron ore exports to Asia and Europe, China, Japan, Korea has been a major exporter of iron ore in Australia. Western Europe is also a major exporter of iron ore in Australia, which exports more than one million tons of countries include United Kingdom, France, the Netherlands and Germany. In recent years, the number of Turkey's iron ore imports from Australia is rising, reaching one million tons or more. Some other countries imports iron ore from Australia include Pakistan, Italy, USA and Malaysia.

Brazilian iron ore exports only behind Australia, its iron ore exports nearly one-third of the world's total exports. 2000 Brazilian iron ore exports is160 million tons, ranking first in the world, in 2011 export volume reached 330 million tons.

Indian iron ore resource is rich, which is Asia's second-largest iron ore reserves country, compared with China, although India reserves not as good as China, but its iron ore quality is better than China. Indian iron ore export volume in 2000 was 34.92 million tons, exports for the first time exceeded 100 million tons in 2008, reaching 104 million tons, accounting for 11.07% of total world trade.

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