Hyundai Steel fires up 3rd blast furnace amid fears of over-supply

DANGJIN, South Korea, Sept 13 Thu Sep 12, 2013 8:59pm EDT

DANGJIN, South Korea, Sept 13 (Reuters) - South Korea's Hyundai Steel fired up its third blast furnace on Friday as it seeks to grasp market share from POSCO and Japan in the alloy used to make cars and ships, sparking fears about over-supply amid weak demand.

Hyundai Steel started its first blast furnace in 2010, breaking POSCO's dominance and offering stable supplies to affiliates - Hyundai Motor and Kia Motors , which together rank fifth in global auto sales.

Hyundai Steel, part of the Hyundai Motor Group owned by chairman Chung Mong-koo, said the new blast furnace had boosted its annual production capacity by 4 million tonnes to 12 million tonnes.

Including electric arc furnaces with a capacity of 12 million tonnes, Hyundai Steel has a total capacity of 24 million tonnes, making it the world's 11th largest steelmaker, up from 31st in 2006.

But the latest, $3.4 billion facility also rekindles concern about oversupply.

"I'm not that worried about a supply glut in autos, but the shipbuilding sector is a different matter. Demand from shipbuilders has crumbled and the new facilities will exacerbate supply," said Kim Kang-oh, an analyst at Hanwha Securities.

Hyundai Steel shares have fallen 6 percent so far this year, despite bouncing back since late June.

Hyundai Motor and Kia are the only major automobile groups with steelmaking units. They used to source steel from POSCO and Japanese carmakers before Hyundai Steel started its first blast furnace.

"The third blast furnace will be a further threat to POSCO, which faces a challenge of boosting sales to overseas automakers," said Choi Moon-sun, an analyst at Korea Investment & Securities.

With an operating margin of 6.2 percent last year, Hyundai Steel was more profitable than bigger rival POSCO, China's BaoSteel and Japan's Nippon Steel & Sumitomo Metal , according to Reuters Starmine data. ($1 = 1,086 won) (Additional reporting by Ruby Lian in SHANGHAI; Editing by Nick Macfie)