Chung Eui-sun, chairman of Hyundai Motor Group, met with U.S. President Donald Trump and promised to build a steel mill in the United States. This is expected to earn Hyundai Motor Group a high rating from the Trump administration and lower production expenses by sourcing steel plates in the United States, where industrial electricity rates are lower, achieving a 'two birds with one stone' effect.
Chairman Chung noted on the 24th (local time) that he would invest $21 billion (about 31 trillion won) in the United States over the next four years, from this year through 2028, for automobiles, parts, logistics, steel, and future industries.
This investment announcement also included a plan for Hyundai Steel to build an electric arc furnace steel mill with a capacity of 2.7 million tons in Louisiana, USA. This will be the first steel mill that Hyundai Motor Group builds in the United States, specifically designed for low-carbon automotive steel plate production. Hyundai Motor Group said, "This will be an opportunity to enhance the ability to respond to various uncertainties such as tariffs by procuring high-quality steel plates locally."
Energy industry experts believe that the cheaper industrial electricity rates in the United States compared to South Korea also contributed to Hyundai Motor Group's decision to build a steel mill in the U.S. To compete in the finished vehicle market, it is essential to improve the quality of automotive steel plates, but high electricity costs in Korea have made it difficult to produce high-quality steel plates.
Hyundai Motor and Kia are currently increasing the share of ultra-high-strength steel plates in the vehicles they produce. Ultra-high-strength steel plates offer advantages of higher strength to withstand external shocks and greater formability compared to regular steel plates. Hyundai Steel is considered one of the companies in South Korea that consumes the most electricity because it produces ultra-high-strength steel plates in electric arc furnaces.
Industrial electricity rates in Korea are higher than in the United States. According to Korea Electric Power Corporation, Korea's industrial electricity rate was $95.3 per megawatt-hour (MWh) as of 2022, which is more than 10% higher than the U.S. rate of $84.5.
The government has minimized increases in residential electricity rates even during periods of significant losses for Korea Electric Power Corporation, while raising industrial electricity rates significantly. The Ministry of Trade, Industry and Energy and KEPCO froze residential and commercial electricity rates last October, while increasing industrial rates by an average of 9.7%. Small and medium-sized enterprises saw a 5.2% increase, while large corporations faced a 10.2% hike.
As a result, the expense burden on corporations in sectors with high electricity consumption, such as steel, semiconductors, displays, and petrochemicals, surged.
The United States is considered one of the countries with low industrial electricity rates. According to KEPCO, when the average industrial electricity rate among the 38 member countries of the Organisation for Economic Co-operation and Development (OECD) is set at 100, the United States stands at 58, the lowest rate excluding unreported countries like Australia and Iceland.
The United States primarily supplies electricity through natural gas power plants. The southeastern region of the United States, where Hyundai Steel's steel mill is to be located in Louisiana, is known for its abundance of natural gas, making electricity rates relatively low.
Kwon Hyo-jae, head of COR Energy Insight, said, "Currently, industrial electricity rates in South Korea are at a level that makes it difficult for corporations with high energy consumption to endure. While there are trade pressures behind Hyundai Motor's investment of 31 trillion won in the United States, the issue of high energy rates also plays a role. There needs to be consideration on how to resolve this matter."