South Korean Dongkuk cut losses by selling business in China

South Korean plate and bar maker Dongkuk Steel Mill has finally avoided years of losses at its coated sheet subsidiary in east China's Jiangsu province by selling 90% of its stake in Dongkuk Steel China (DKSC) to the local government of Jiangyin for Won. 97 billion ($73.6 million), the company announced.

“Dongkuk Steel has come to the conclusion that China’s domestic market, which is mainly based on low-cost general goods, is different from (our company’s) gentrification-oriented business line such as Luxteel, and it is difficult to ensure competitiveness 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 repayment of 40 billion won loans (and) expects to improve its external creditworthiness by cleaning up its (losing) business,” it said in a statement. the company said.

Established in 2001 in Jiangying by Korean coated sheet manufacturer Union Steel Manufacturing (which Dongkuk acquired in 2015), DKSC ​​has a capacity of 520,000 tons per year of hot dip galvanized sheets and coils, galvanized sheets and color coated sheets. However, in its two decades of existence, the Jiangyin plant has never made a profit, Dongkuk admitted, and its capacity utilization has never exceeded 50%, Korean sources say.

DKSC has always faced fierce competition from low-cost Chinese coated sheet manufacturers, and even Dongkuk's introduction of Luxteel's high-tech coated sheet grade, which includes at least six layers of coating, has failed to set the company apart from domestic rivals.

Korean daily newspaper Business Watch notes that DKSC ​​produced 230,000 tons in 2020, and while that was a marked improvement from the previous year's 130,000 tons, its parent company Dongkuk had enough.

Last November, Dongkuk announced that after selling off most of the Jiangyin plant's steel inventory during the July-September quarter, the company is halting production entirely and plans to turn the plant into a warehouse.

DKSC is located on the banks of the Yangtze River in Jiangying, and Dongkuk's logistics subsidiary, Intergis, has had a freight forwarding and stevedoring business - Union Logistics Jiangyin Co - from there since 2010.

In a statement, Dongkuk said its stakes in DKSC ​​and Union Logistics were sold to the Jiangyin government. Negotiations are ongoing to find a buyer for the remaining 10%, according to Korean news reports.

What awaits the plant in the future is still unclear. Calls made by Mysteel Global to Jiangyin City and DKSC ​​went unanswered.

For its part, Dongkuk presents its move away from steel production in China in a positive light.

“Based on the newfound financial strength and growing demand for high-quality non-ferrous steel plate, further expansion into high-yield markets is encouraged,” the company said in a statement, indicating that Dongkuk plans to complete the acquisition of production bases. in Vietnam and Mexico this year and provide additional bases in Oceania, the US and Europe by 2030.