Posco Reveals Its M&A Strategy

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Posco revealed several bits of news about two weeks ago which steel buyers everywhere may find of interest. The first piece of news involves its own estimates of steel demand increasing by 10% this year. That may not strike anyone as noteworthy given the past year but nonetheless, it appears positive.  The second bit of news of interest for metal buying organizations involves the level of R&D spending by Posco. It intends to increase its research to sales ratio from 1.5% to 1.7% as well as continue cost cutting efforts. But perhaps the most interesting news involved its announcement to invest (and we have seen differing reports on the amount) either $6.02b or 3 trillion won of its $8.3b investment spending for acquisitions.

Since most of the M&A news that makes its rounds here in the States involves the domestic or global steel producers or Chinese firms who have acquired a variety of global interests, we have rarely, if ever reported on M&A activities of other Asian firms. According to this Reuters article, Posco intends to go after key raw material supplies including a 15% investment in an iron ore project in Australia along with capability to “expand wallet within existing customers by purchasing Thailand based Thainox (a stainless steel producer). In addition, Posco has also gone after key clients to add to its acquisitions, particularly those industries expected to grow considerably this year such as Daewoo Shipbuilding, Daewoo Engineering & Construction and Daewoo International with significant trading and energy development business as these businesses give Posco an “in to energy exploration and development.

Posco’s move buying into a new lithium producer PAL may send a strong signal as to where at least one steel producer sees not only improved demand but also new demand. Toyota and Posco have started to place their bets on the market for HEV’s and PHEV’s. These types of M&A activities also tell us much about how these firms view supply risk. Off-take agreements, direct investment, joint ventures and partnerships will likely only grow as some of these new technologies take root. Stay tuned.

–Lisa Reisman

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