Steel giant seeks auto partnerships
Posco to spend $2 billion on as many as 200 tie-ups
South Korean steel conglomerate Posco Ltd. plans to spend at least $2 billion to create as many as 200 joint ventures -- many with U.S. auto suppliers.
Posco and its international trading subsidiary Daewoo International look to own as much as 20 percent of the joint ventures. Posco wants to create ventures with auto suppliers, including metal stampers for doors and chassis as well as motor manufacturers, said Steven Bigatti, executive director of business development at Posco's North America business group in suburban 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 a 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."
Posco intended to announce the plan today, Oct. 8, in South Korea.
The joint venture strategy is designed to increase Posco's revenue by 220 percent to $200 billion globally by 2020 from $62.2 billion with net income of $3.3 billion in 2011.
Bigatti said the company expects North American nonsteel automotive revenue to reach $500 million by 2015 from $200 million this year. Total North American revenue is projected to rise to $5 billion by 2020 from $1 billion in 2012, he said.
Posco is not limiting the joint ventures to automotive, Bigatti said.
Bridget Freas, a senior equity analyst covering the metals markets for Morningstar Inc. of Chicago, said vertical integration is emerging as a trend among steel makers. Posco is going in a different direction by acquiring assets on the end-product side.
"Vertical integration has been a hot topic in steel, but that has been mostly upstream [mining and scrap recycling] for raw materials, not downstream into the end markets," Freas wrote in an e-mail. "But I can't imagine too many structural JVs will be formed because automakers likely won't want to tie themselves to only one" overarching supplier.
Posco supplies engine and transmission parts to General Motors and Chrysler Group; seating components and aluminum and steel wheels to Ford Motor Co. 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 other products.
Posco operates one wholly owned plant in the United States -- a steel-processing plant in McCalla, Ala. -- and two in Mexico. It also operates a 50-50 joint venture in Pittsburg, Calif., with U.S. Steel Corp. -- USS-Posco Industries -- that supplies the oil and gas industry.