POSCO Will Expand Steel Plate Finishing in Mexico

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Researched by Industrial Info Resources (Sugar Land, Texas). POSCO (NYSE:PKX [ADR]) (Seoul, South Korea) has just announced that it will invest $250 million in a new 400,000-ton a year galvanized steel plate mill in Altamira, Tamaulipas, Mexico in 2008. POSCO selected Mexico for the new plant in order to take advantage of Mexico’s lower wage structure and the rising demand from the North American automotive market, which will be opened up to duty-free trade under the terms of the NAFTA and CAFTA agreements.

POSCO intends to set up a new subsidiary in Mexico, its first wholly-owned North American subsidiary, which company sources say should be established by the end of 2006. POSCO expects to finalize a site, which will more than likely be located at or near the Port of Altamira. Construction is expected to begin in early 2008, with completion and operational start-up scheduled for 2009. According to the POSCO office in Mexico City, the company will be sending an envoy from Seoul to finalize location and construction plans in the immediate future.

POSCO has a joint venture with U.S. Steel (NYSE:X) (Pittsburgh, Pennsylvania), USS-POSCO (Pittsburg, California), which produces 155 tons a year of cold-rolled steel. OEM and supplier demand for galvanized (zinc-coated) steel plate, which, along with galvannealed steel (steel with a zinc-iron alloy coating on the steel surface), is what the automotive industry requires, is calculated to be about 1.6 million tons a year.

Mexico’s present output of galvanized plate is about 300,000 tons a year, while its demand has been pegged at 1.3 million tons a year, the difference of which has had to be imported. Mexico’s top four galvanized steel producers, Imsa Acero SA de CV, Hylsamex SA de CV’s Galvak operation, Grupo Villacero’s Zincacero unit, and Galvasid SA de CV, all based in Monterrey, have not been able to meet the escalating demand from the automotive industry, which includes most of the world’s OEMs and thousands of automotive suppliers, all of whom are hurrying to grab their respective shares of the upcoming NAFTA/CAFTA-afforded goodies. Mexico is home to many of the world’s automotive OEMs, namely Volkswagen, General Motors, Toyota, Daimler Chrysler, Nissan, Honda, Ford, and over one thousand parts suppliers. It is not yet known how much, if any, internal competitive pressure this new mill will generate between itself and USS-POSCO in California, but the present market for galvanized steel seems to warrant the risk.

The galvanized sector is also expanding in the U.S., with new mills planned by Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina) in Decatur, Alabama. Nucor bought the pickle/temper/annealing unit of Worthington’s Decatur operations in 2003 and is expanding the site, while Worthington retains the cold-rolling mill. SeverCorr, LLC in Columbus, Mississippi is building new capacity, and a possible new galv facility is being considered by Dofasco, Incorporated in Hamilton, Ontario to supply the new Toyota plant now under construction in Woodstock, Ontario. Nucor Decatur will produce 500,000 tons a year, while SeverCorr will produce 400,000 tons a year.

POSCO is the world’s third-largest steelmaker at 30 million tons a year, behind the voraciously expanding #1 Arcelor-Mittal (NYSE:MT) (Luxembourg) at 120 billion tons a year and #2 Nippon Steel Corporation (TSE:5401) (Tokyo, Japan) at 33 million tons a year. Russia’s steelmaking giant OAO Severstal (NYSE:CHMF) (Cherepovets, Russia), which owns half of the joint venture SeverCorr (Columbus, Mississippi), produced 17.1 million tons in 2005.

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