The Hyundai Kia Automotive Group affiliate began work on the 6.23 trillion won ($5.54 billion) plant in Dangjin South Chungcheong Province in October 2006. A blast furnace, the first of the two planned for the plant, was fired up in January.
"Today we are at the site of the new beginning of Korea’s steel industry,” President Lee Myung-bak said at the event.
“Due to the unprecedented financial crisis, many companies held back investment, but Hyundai Steel went ahead with daring investment plans, making today possible.”
The president was among the 2,500 government and industry leaders including Roger Agnelli, chief executive of the Brazilian mining firm Vale, and Alberto Calderon, chief commercial officer of the Australian mining firm BHP Billiton attending the ceremony.
“The Dangjin integrated steelworks was built with the aim of becoming a ‘green steelworks’ equipped with world class eco-friendly facilities and technologies,” Hyundai Kia Automotive Group chairman Chung Mong-koo said at the ceremony.
The Dangjin plant is the world’s first to be equipped with enclosed storage for raw materials to prevent the spread of dust, which is one of the more problematic pollutants associated with steel mills, according to the company.
“With the completion of the plant, Hyundai Kia Automotive Group is able to complete the world’s first ‘resource circulating business structure’ that goes from molten iron to automobiles.”
Under the resource circulating business structure, steel produced at the Dangjin plant will be processed by Hyundai Hysco into cold-rolled products, which will then be used in Hyundai Motor Co. and Kia Motors Corp.’s vehicles.
The steel from scrapped vehicles will then be melted down at Hyundai Steel’s electric blast furnace and used to produce construction materials, which will be used by the group’s construction firm Amco.
The plant currently has an annual production capacity of 4 million metric tons, but the figure will be raised to 8 million tons following the completion of the second blast furnace in November. In addition, the company plans to add another 4 million ton capacity blast furnace to the Dangjin facility at a later date.
Pilot operations of the second blast furnace are scheduled for the final two months of the year, and full operation is set to begin in January 2011.
“Of the 8 million ton output, 6.5 million tons will be used for hot rolling with automobile plates being the main product. The rest will be used to produce thick plates, mainly ship plates,” executive vice president Oh Myung-suk said.
“We have completed developing 104 of the 120 hot-rolled products we plan to develop by 2012. The company will also develop exterior automobile plates by the end of the year.”
He added that the company currently has a 400-person research and development team including personnel from the group’s carmakers, and that the steelmaker is planning to expand research facilities.
The new plant also significantly increases Hyundai Steel’s production capacity, making it one of the world’s top 15 steelmakers in terms of production.
According to the World Steel Association, Hyundai Steel was the world’s 30th largest steelmaker in 2008 with an annual output of 9.9 million metric tons in that year.
Including the company’s 11.5 million ton production capacity from electric blast furnaces, the addition of the second blast furnace will push up Hyundai Steel’s annual production capacity to 19.5 million tons.
“The company is changing from a down stream process to an up stream process. The significant thing is that the company’s profit structure is changing,” said SK Securities Co. analyst Lee Won-jae.
“As you move up stream, the profit margin increases. An electric blast furnace provides between 5 percent and 10 percent profit margin, but what POSCO is doing allows 15 percent to 20 percent profit margins when conditions are good.”
However, Lee said that moving upstream in the steel industry is not without its risks.
“There are some investors who think that the new plant is risky because it is a venture into a new area and the market is concerned about raw material prices.” he said.
“For about 40 years, steel raw material prices were set annually, but now they will be decided in quarters. POSCO is likely to raise prices soon, but the concerns are whether the increase in costs can be reflected sufficiently in product prices and for Hyundai Steel the worries are amplified as the company is new to the market.”
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