November 21, 2024

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View of Zhangjiagang Pohang Stainless Steel Plant (Posco Group)

Posco Group is reportedly considering selling its stainless steel plant in Zhangjiagang, China, as part of a broader restructuring initiative led by Chairman Chang In-hwa to streamline 125 low-profit and non-core assets.

According to industry sources Friday, Posco is in the process of selecting an advisory firm to aid in decision-making regarding the sale of Zhangjiagang Pohang Stainless Steel.

With an annual production capacity of 110,000 metric tons, the plant was constructed near the Yangtze River in Jiangsu Province in 1997 as a joint project between the Korean firm and a Chinese group. It was once regarded as a model for Korea-China cooperation.

“As part of the ongoing restructuring of assets, it is true that we are reviewing the potential sale of PZSS," a Posco official confirmed Friday. "However, the sale has not yet been finalized, and we are also exploring options such as attracting investment from other entities."

The official also dismissed speculation that this move is part of a China de-risking strategy, clarifying that it is merely one of multiple options being considered as part of a broader restructuring of Posco’s overall portfolio.

PZSS had generated profits in the hundreds of billions of won until the early 2010s.

However, profitability has declined as China's stainless steel production surged to 28.21 million tons, leading to oversupply. Currently, the stainless steel production capacity of China's 43 steel companies exceeds demand, with 28.21 million tons produced compared to 24.17 million tons consumed domestically.

The plant posted a loss of 77.3 billion won ($58 million) in 2022, and its deficit widened to 169.8 billion won last year. Despite local production, Posco sees limited potential for profit improvement given the market conditions.

Posco Holdings owns 58.6 percent of PZSS, while Posco China holds 23.9 percent, giving Posco a total stake of 82.5 percent. China’s second-largest steelmaker, Shagang Group, holds the remaining 17.5 percent.

Posco is currently executing a restructuring plan to sell low-profit and non-core assets, aiming to divest 125 businesses or assets by 2030. As of the third quarter, the company has completed the restructuring of 21 assets, bringing in 625.4 billion won in cash.

Through the restructuring, Posco plans to generate 2.6 trillion won by 2026 to fuel the group’s growth initiatives.

By Kim Hae-yeon (hykim@heraldcorp.com)