USS-POSCO joint Venture Expected to Post Loss This Year

2017-12-18

Dec. 18, 2017 - As material procurement costs have surged due to trade sanctions, POSCO’s joint venture in the United States is expected to post a loss this year. The US government’s measures to impose anti-dumping tariffs to protect its steel industry seem to backfire on the industry instead.

According to industry sources on December 12, USS-POSCO Industries (UPI) is forecast to record a minimum of 12 billion won (US$11.06 million) of operating loss this year. The company posted 5.2 billion won (US$4.79 million) in operating profit last year. After making a deficit of some 22 billion won (US$20.27 million) in the fourth quarter last year, it has failed to rebound not even once.

UPI is a 50-50 joint venture established in 1986 between US Steel and POSCO. It has manufactured 1 million tons of steel materials, such as cold-rolled steel, galvanized steel, and tinplate, a year after importing hot-rolled steel sheets from POSCO’s plant in South Korea.

The US Department of Commerce imposed 61 percent of anti-dumping and countervailing duties on hot-rolled steel sheets imported from POSCO in September last year. As UPI hasn’t able to receive the products from POSCO from the third quarter last year owing to the high rate of tariffs, the company has had to buy hot-rolled steel sheets from US Steel. However, UPI has had to pay a 20 to 30 percent higher premium than POSCO products and it has dramatically pushed up the cost of production, which has led to turning towards the red in the end.

However, domestic firms were not the only one suffering from the US government’s trade sanctions. POSCO submitted a written opinion to the US Department of Commerce in May, pointing out that the US can also suffer a loss with trade sanctions against South Korean steel products. The company said, “UPI, the joint venture with US Steel in the US, showed a gain of US$24 million (26.06 billion won) until the third quarter last year but it caused a loss of US$20 million (21.71 billion won) after implementing commerce sanctions. The company has been hit hard enough to consider whether to continue business.” when its business showings get worse, it will adversely affect the employment of 600 local workers.

In addition, the US Department of Commerce raised preliminary tariffs on South Korean wire rod steel by nearly four times from 10.09 percent to 40.8 percent last month. The industry says that not only domestic steel companies that export wire rod steel but also US manufacturers can suffer a damage when the preliminary decision is confirmed in January next year. US auto component producers run business by processing high-grade steel after importing wire rod steel. Unlike South Korea, there not many facilities that can manufacture high-grade steel in the US. This is why component manufacturers has no choice but to purchase high-grade steel from POSCO, though the price goes up. In short, the burden caused by the high rate of tariffs will be directly passed on them. Furthermore, it can put the dampers on the employment plans of POSCO which established a wire rod processing center in Indiana in September with the investment of 26 billion won (US$23.94 million).