Hyundai Steel's US $6 billion investment enrages investors, tests Seoul's Tariff Strategy

Investors continued to hammer Hyundai Steel's shares in late March after the South Korean company announced a $6 Billion investment in the U.S. The company organized a conference call with 12 investors to calm their nerves about the project, which lacked any detailed funding plans.

Hyundai Steel's official apologized for the announcement of the deal while some details were still being reviewed. The deal was part of a $21 Billion U.S. Investment Package that Hyundai Motor Group, its parent company, unveiled on March 24, at the White House.

The person who attended the meeting confirmed that he had said: "But we needed to move fast because of the rapidly developing U.S. Tariff situations and our government's limited ability to respond actively." This comment was made in reference to the political vacuum created by former president Yoon Suk-Yeol's removal from office.

Four Hyundai executives as well as government officials said that they hoped this investment would pave a way for Hyundai to pursue more favorable terms with the U.S. in tariff negotiations.

Senior South Korean government officials will meet with their U.S. equivalents in Washington, DC on Thursday to discuss tariff exemptions and reductions.

Some investors, workers and trade experts are worried about whether the plan hastily drafted will help South Korea gain trade concessions.

After the White House event on Tuesday, President Donald Trump announced 25% tariffs for imported autos with no exceptions for Korean products.

What would be the longer-term benefit if U.S. trade and tariff policies changed again after 2029, when the new facility is operational and Trump has left office? One investor asked on the call.

The U.S. has also been asked what concessions they expect from Hyundai, as well as whether the company will be able fill the new capacity.

Hyundai Steel shares have lost 21.2% since the announcement of the investment. This is less than the 18.3% decline in POSCO Holdings and the 5.5% drop in the benchmark index. Hyundai Motor's shares dropped 12.9% in the same time period.

Hyundai Steel is currently grappling with a weak domestic steel demand, a flood of cheap Chinese-made steel and strikes by workers over a recent wage agreement. It will report its quarterly results on Friday.

Analysts warn that the investment may also put financial pressure on the struggling steelmaker. It could be forced to reduce the capacity of the plant. The new facility is expected to have enough steel to build 1.8 million cars a year. This is well above the combined target of 1.2 millions units set by Hyundai and Kia's affiliate in the U.S.

If the project is financially unviable, it's likely that the company will scale back the project or delay its execution. Chan H. Lee said that the announcement could be a political gesture rather than a commitment.

Hyundai Steel stated in a press release that it expects a "stable" demand for automotive steel in America, the largest auto market in the world. It also said its planned U.S. plant will supply high quality, low carbon steel products to Hyundai-Kia as well as other U.S. clients.

The company also added that the tariff negotiations and investments are "separate issues." Hyundai Steel responded to concerns regarding its domestic operations by saying it was working on improving the competitiveness in its South Korean factories.

Hyundai Steel has said that it will borrow 50% of the U.S. investments, but has not yet disclosed how the remaining investment will be divided amongst potential equity investors. It announced earlier this week that local rival POSCO will make an equity investment.

UNUSUAL

Hyundai Motor, along with its affiliate Kia, who together generate approximately one-third their global sales in the U.S., have courted Trump ever since his victory at the November election. South Korea exports more cars to the United States than Mexico.

Hyundai Motor donated $1,000,000 to Trump's inaugural funds and invited him to the opening ceremony of their new Georgia car factory, Hyundai Motor Group Executive Chairman Euisun Chung said to reporters at an event in late march.

Chung reported that after being briefed on Hyundai's U.S. Steel Factory Plan, Trump invited the Chairman and other Hyundai executives into the White House.

It's unusual for the White House to announce an investment program, because we normally organize such events in conjunction with state governments, where we invest, said a source familiar with the situation, who declined to be named as he wasn't authorized to speak with the media.

The White House seemed to want to use our investment as a way of proving that its tariff policies work.

Hyundai Motor Group's investment plan is still confined to the announcement. South Korea hopes to negotiate a reduction of the 25% tariffs Trump imposed on South Korean products (since suspended 90 days ago) or to give exemptions from a separate 25% tax imposed by the United States on imported steel and vehicles.

Chung told journalists that he did not expect that one company's investment alone would bring about a major shift in U.S. Tariff Policy. Its new U.S. Factory is designed to meet possible requirements for low carbon steel, rather than to prepare for tariffs.

He said that tariffs were a matter of state between countries. The South Korean and Hyundai governments will be holding talks with the U.S. government.

Hyundai Motor Group stated in a press release that it is "closely monitoring new policy developments" and constantly reviewing various business strategies in order to ensure long-term profit. It added that the company still plans to spend $24.3 trillion won (17.05 billion dollars) in South Korea in this year.

Experts also expressed concerns about the role that Hyundai's investment could play in the tariff negotiations between Washington and Seoul.

In trade negotiations, both sides avoid making unmatched concessions early on, and prefer a package-deal approach. "These are not normal times," said Wendy Cutler - a former U.S. trade representative chief negotiator and head of the Asia Society Policy Institute.

She said that Korean negotiators will need to remind U.S. negotiators of the importance of getting credit for any final agreement.

Former trade minister Yeo Ha-koo said, "Who knows what might have happened if Hyundai had coordinated with government and included the investment in Seoul's broader package offer later?"

Hyundai workers in South Korea are still worried about the trade talks, as there is uncertainty.

Kang Dohoon, an Incheon factory worker who is now facing a month-long suspension of operations due to a weak demand for construction steel, says the U.S. investments plan by Hyundai upsets many workers, as they had been calling for greater investment in local factories.

Kang, a 15-year employee at the plant, said: "This is the very first time that we have had to deal with such a situation. I'm really concerned."

"We feel a sense of loss." ($1 = 1,425.0100 won) (Editing Miyoung Kim & Kim Coghill).

(source: Reuters)