POSCO Plans Joint Ventures with U.S. Auto Suppliers and Manufacturers

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--South Korean steel major POSCO (NYSE:PKX) (Seoul, South Korea) is planning to spend a minimum of $2 billion to create up to 200 joint ventures. Many of these joint ventures will be set up with auto suppliers in the U.S.

POSCO and its international trading subsidiary Daewoo International are aiming to own up to 20% of the joint ventures. The company plans to create ventures with auto suppliers, including metal stampers for doors and chassis, in addition to motor manufacturers, said Steven Bigatti, executive director of business development at the company's North American business group in Detroit.

"We feel in the future of the supply business, companies will have more vertical integration," he said. "We have the raw material, and this is the way to participate in this trend of reverticalization of the supply base while maintaining our core competencies and matching up with the technology know-how we just don't have."

The joint-venture strategy is designed to increase POSCO's revenue by 220% to $200 billion globally by 2020, from $62.2 billion and net income of $3.3 billion in 2011, reports Korea Auto News.

Bigatti said the company expects North American non-steel automotive revenue to reach$500 million by 2015 from $200 million in 2012. Total North American is projected to rise to $45 billion by 2020 from $1 billion in 2012. POSCO will not limit the joint ventures' scope solely to the automotive sector.

The company supplies engine and transmission parts to General Motors (NYSE:GM) (GM) (Detroit, Michigan) and the Chrysler Group; seating components and aluminum and steel wheels to Ford Motor Company (NYSE:F) (Dearborn, Michigan) and Chrysler; and textiles to GM. It also operates an aftermarket business selling wiper blades, commercial vehicle tires, steering and suspension components and batteries, among a range of products.

POSCO operates one wholly owned plant in the U.S., a steel processing plant in McCalla and two in Mexico. It also operates a 50/50 joint venture in Pittsburgh, USS POSCO Industries, with U.S. Steel Corporation (NYSE:X) (Pittsburgh, Pennsylvania) that supplies the oil and gas industries.

Commenting on POSCO's plans, Bridget Freas, a senior equity analyst covering the metals market for Morningstar Incorporated (NASDAQ:MORN) (Chicago, Illinois), told Korea Auto News that vertical integration is emerging as a trend among steel makers. POSCO is going in a different direction by acquiring assets on the end production side.

"Vertical integration has been a hot topic in steel, but that has been mostly upstream, not downstream into the end markets," Freas said. "But I can't imagine too many structural joint ventures will be formed, because automakers likely won't want to tie themselves to only one overarching supplier."

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