Heykyong Yang and Hyunjoo Jin
SEOUL (Reuters) – In late March, after a South Korean steelmaker announced its $6 billion investment in the US, the company organized a call with 12 investors to calm the nerves of a project that lacked a detailed financial plan as investors continued to slam their shares in Hyundai Steel.
“Some of the details have apologised for the plans being announced while still being reviewed,” Hyundai Steel officials told them about the deal, which is part of the parent Hyundai Motor Group’s $21 billion US investment package announced at the White House on March 24th.
“However, we had to move quickly in light of the rapid development of the US tariff situation and the limited ability of the government to respond proactively,” he said that according to a transcript of the call seen by Reuters, it was confirmed by someone with first-hand knowledge of the closure meeting. The statement referred to the political void that stems from former President Yuk Yeol’s ammo each.
Four Hyundai executives and government officials told Reuters they hope that the investment will pave the way for Hyundai and South Korea to seek more favorable terms in tariff negotiations with the US.
High-ranking South Korean government officials are scheduled to consult with US counterparts in Washington on Thursday as they seek to exempt or reduce tariffs.
However, some investors, trade experts and workers are concerned about whether the rushed plan will actually help South Korea win trade concessions.
Two days after the White House event, President Donald Trump announced a 25% tariff on imported cars that are not exempt from South Korean products.
“What will the long-term profits be like as new plants come into operation in 2029 and Trump stops taking office could change again in the US tariffs and trade policies?” he asked one investor over the phone.
Other questions raised include why the plants are being built in Louisiana. Louisiana is the concessions it expects from the US, not the neighboring state where its client Hyundai Motors has its automotive plants, and whether Hyundai can have enough customers to fill its capabilities.
Hyundai Steel’s stock has lost 21.2% of its value since the investment was announced, with a loss of 18.3% from rival Posco Holdings and a 5.5% benchmark index. Hyundai Motor’s shares fell 12.9% over the same period.
The investment plan comes as Hyundai Steel is tackling weak domestic demand, with labor running through influx of cheap Chinese steel and recently agreed wage transactions. We will report quarterly results on Thursday.
Analysts warn that investments could add to financial stress for steelmakers struggling with, and that they may need to reduce the capacity of new factories, which are expected to produce enough steel to make 1.8 million vehicles a year.
“If the project turns out to be financially unfeasible, the company is likely to reduce or delay it. At this stage, the announcement may be more about political signaling than solid commitment,” said Chang H. Lee, managing partner at Petra Capital Management in Seoul.
Hyundai Steel said in a statement that “stable demand” for U.S. automotive steel, the world’s largest automotive market, is expected, and its planned U.S. facility will supply high-quality low-carbon steel products to both Hyundaikia and other U.S. customers.
The company added that its investment and tariff negotiations are “separate issues.” Hyundai Steel said it is working to address concerns about its domestic business and to increase the competitiveness of its South Korea factories.
Hyundai Steel said it will borrow and fund 50% of its US investments, but has yet to say how the remaining investments will be split into potential equity investors. Earlier this week, local rival Posco said he would invest in the project.
Not normal
Hyundai Motor and affiliate KIA have been courting Trump since winning the November election, generating about a third of global sales from the US market. Korea is the second largest automobile exporter after Mexico.
Hyundai Motor donated $1 million to Trump’s first fund and invited him to the opening ceremony of the new Georgia Auto Factory in late March, Hyundai Motor Group executive chair Huizen Chung told reporters at the event in late March.
After being briefed on Hyundai’s US steel plant plan, Trump invited the chairman and other Hyundai executives to the White House, Chong said.
“It’s very rare for us to announce investment plans at the White House. We are usually investing in such events to host such events with the state government where we are investing,” a person familiar with the matter told Reuters, denying it to be identified because they are not allowed to speak to the media.
“The White House appears to have wanted to promote our investment as an example of how its tariff policy works.”
For Hyundai Motor Group, the investment plan has not exceeded the flashy announcement so far, as South Korea wants to negotiate a cut in the 25% tariffs it has imposed on South Korean goods (as it was suspended for 90 days) and exempt another 25% tax imposed on imported vehicles and steel.
Chung told reporters that he does not expect the investments of a company alone to bring about major changes to US tariff policies. The new US factory said it would be to meet potential requirements for low-carbon steel, rather than preparing for tariffs.
“Taxes are a national issue between countries,” he said. He added that Hyundai and the South Korean government will hold talks with the US administration.
“We are closely monitoring new policy developments and are continuously reviewing various business strategies to ensure long-term profitability,” Hyundai Motor Group said in a statement, adding that it plans to invest 24.3 trillion won ($170.5 billion) in South Korea this year.
Some experts also reserved how much of a role Hyundai’s investment will play in the customs talks between Seoul and Washington.
“Usually, each person avoids making unparalleled concessions in trade negotiations and prefers a package trading approach. But these are not normal times,” said Wendy Cutler, the former US trade representative who leads the Institute for Policy Research in Asia.
She said South Korean negotiators need to remind the US negotiating team of the need to gain credit for their investment in the final transaction.
“If Hyundai coordinated with the government and used the investment as part of Seoul’s broader package offer, which we know might have been a little different.”
As uncertainty over trade talks continues, some South Korean Hyundai workers are worried.
Kang Do-Hoon, a factory worker at the modern incheon production site, said it faces a month-long shutdown due to weak demand for construction steel, and its US investment plan is upsetting many workers as it seeks more investment in local factories.
“This is the first time I’ve experienced such a bad situation… so I’m really worried,” said Kang, who has worked in the factory for 15 years.
“We feel a great sense of loss.”
($1 = 1,425.0100 won)
(Edited by Miyoung Kim and Kim Coghill)
