I have often commented on how the entire Asia Pacific region that surrounds China and India are booming, thanks to robust growth in these two emerging Asian giants. That’s why a recent story in the Financial Times caught my attention, since it shows this global dynamic at work, from one steel company’s point of view.
South Korea’s largest steelmaker Posco (PKX) made headlines earlier this year when it was revealed that Warren Buffett owned a 4% stake in the company. Posco has been growing by leaps and bounds in recent years, thanks to booming economic growth at home, and across the entire Asian region.
Ambitious Global Expansion Plans to Include China
In fact, Posco today is the world’s 4th largest steel producer, and is rapidly closing in on Japanese rival Nippon Steel for the #3 spot. According to the article “the steelmaker has enjoyed annual sales growth of 12 per cent over the past decade,” tripling its total sales of steel since 1997. Posco is in the midst of an aggressive expansion plan as “it aims to triple sales” over the next 10-years!
Posco is opening state-of-the-art steel plants all around the region including Vietnam and India. Now, Posco is looking to invest directly in the booming Chinese market – the world’s largest consumer of steel. The company is in talks with Beijing to partner up with China by taking a minority stake in local Chinese steel companies.
The attraction for China is obvious: an increased supply of a key basic resource it needs to sustain the country’s expansion. Posco also has superior technology to offer, and that’s the real icing on top.
Posco’s Cutting Edge Steelmaking Technology is a Competitive Edge
Posco has developed a cutting-edge steel making technology called Finex that allows “the production of molten iron directly from iron ore and non-coking coal, the process cuts out the processing needed for blast furnaces. Finex facilities are also about 20 per cent cheaper to build than traditional blast furnaces and they produce steel for about 15 per cent less.”
A cheaper, more cost effective steel making technology is exactly what the Chinese need, as officials in Beijing grow wary of rising inflation at home.
For Posco this deal makes a lot of since too, because China is the company’s fastest growing export market. In fact, China accounted for 25.3% of Posco’s export sales last year, while Japan gobbled up nearly 20%, and the rest of Asia 19%. North America accounts for just 9.6% of sales.
This means that Posco is very well dialed in to the epicenter of global growth... Asia, and is relatively insulated from the slowing U.S. economy. Warren Buffett strikes again!
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