The steel industry, which is experiencing a recession, is repeatedly halting operations and gathering funds. With domestic demand sluggish and competition with China in pricing, it is interpreted that once Donald Trump is inaugurated as the U.S. president, tariff barriers are also expected, prompting preparations for a more severe winter.
According to the steel industry on the 23rd, Dongkuk Steel Mill's subsidiary, Ajou Steel, has decided to engage in a rights offering in January next year. The goal is to raise approximately 57 billion won by issuing 11.36 million new shares. The rights offering will be conducted through a third-party allocation, with Dongkuk CM, a group company, participating. Ajou Steel plans to enhance its financial stability and strengthen its medium- to long-term growth momentum with the funds secured.
Ajou Steel recorded an operating loss of 26.4 billion won for the cumulative third quarter of this year. This is a reversal from a profit of 2.4 billion won during the same period last year. In August, Ajou Steel was included in the group after Dongkuk CM acquired a 42.4% stake as its largest shareholder for 62.4 billion won. Once the rights offering is completed, Dongkuk CM's equity will increase to 59.7%.
As of the end of the third quarter this year, Ajou Steel's debt ratio reached 543%. In comparison, the debt ratios of competitors in the same industry, KG Steel and POSCO Steelion, were 70% and 46%, respectively, indicating a high level. The debt ratio of the parent company, Dongkuk CM, was 78% at the end of the third quarter this year, while the unlisted competitor, SeAH CM, had a debt ratio of 76% last year.
Dongkuk Steel Mill acquired Ajou Steel to achieve 'DK Color Vision 2030' and to realize economies of scale in the color coated steel business. The group participated in the rights offering to provide financial support and solidify governance for stable management.
Major steel companies are closing plants and focusing on operational efficiency and securing medium- to long-term growth momentum. Last month, POSCO closed the Pohang Steelworks No. 1 Wire Rod Mill, which had been in operation for 45 years and 9 months. This was the second plant closing following the closure of the Pohang Steel No. 1 Plant in July. POSCO stated that it made the closure decision after comprehensively considering the impact of facility obsolescence.
POSCO is also considering the sale of its Jiangsu Jiangzhong Iron and Steel Plant in China. Last year, the Jiangzhong stainless steel business incurred a loss of $13 million (approximately 18.12 billion won) due to delays in China's economic recovery and oversupply. This figure is more than double the loss of $5.9 million (approximately 8.22 billion won) from the previous year.
Hyundai Steel is also in a state of suspension at the Pohang Plant No. 2 to reduce production scale due to oversupply of Chinese products and the deterioration of the steel market. Previously, Hyundai Steel issued a shutdown directive for the Pohang Plant No. 2, but after pushback from the labor union, it retracted the directive and is in discussion.
The reason steel companies are making such decisions is due to uncertain prospects. The Netherlands-based financial group ING projected that due to reduced steel demand and increased iron ore inventories, the price of iron ore will be around $95 per ton next year. According to Korea Resource Information Service, as of the 13th, the price of iron ore was $106.36 per ton.
A company insider noted, "If the economy does not recover, it is difficult to predict when the plants can be restarted. The construction economy, which has the greatest impact on the steel industry, is also uncertain when it will improve."