POSCO to Sale Chinese JV PZSS Amid US-China Trade Tensions

POSCO Holdings Inc., South Korea's leading steelmaker, is planning to sell its entire stake in a Chinese stainless steel joint venture, POSCO Zhangjiagang Stainless Steel Co. (PZSS), due to mounting competition with Chinese steel producers amidst a global supply glut, according to the KED Global. POSCO Holdings and POSCO China currently hold a combined 82.53% stake in the joint venture, with the remaining shares owned by Shagang Group, China's second-largest steelmaker. The sale is estimated to be worth 500 billion won ($361 million), and POSCO has appointed a Korean accounting firm as the lead manager to facilitate the transaction. If a full sale is not possible, POSCO may opt to sell a 50% stake and continue joint management with Shagang Group.

PZSS, located in Zhangjiagang, Jiangsu province, was established in 1997 as a large-scale plant with the capacity to produce 1.1 million tons of stainless steel annually. At its peak, PZSS was a profitable venture, generating significant revenue and regarded as a successful example of POSCO’s international expansion. However, with the rise of Chinese steel producers and a slowdown in China’s construction sector, PZSS began facing financial difficulties. In 2019, PZSS produced 1.1 million tons of stainless steel, but by the following year, production was reduced to 839,000 tons. The venture’s operating losses surged to 170 billion won in 2023, up from 77.3 billion won in 2022.

This downturn is largely attributed to Beijing’s push for steel self-sufficiency, which has led to a surplus of steel production. China’s 43 stainless steel producers have increased output, far exceeding domestic demand, contributing to global oversupply issues. POSCO’s technological advantage over Chinese rivals has diminished, further eroding PZSS's profitability. POSCO Group CEO Chang In-hwa has pledged to implement significant cost-cutting measures to address these challenges, including pursuing mergers and acquisitions in non-steel sectors to secure new growth drivers.

As part of its restructuring efforts, POSCO aims to raise 2.6 trillion won by 2026 through the sale or liquidation of up to 120 non-core and underperforming assets. In addition, POSCO is focusing on bolstering its position in the battery materials sector, with its subsidiary POSCO Future M Co. playing a key role. In 2023, 13 of POSCO’s 38 overseas affiliates posted losses, with PZSS being the largest contributor. The company’s operations in Argentina and Turkey also experienced losses.

Amid growing geopolitical risks, including heightened tensions between the U.S. and China, South Korean companies like POSCO are reevaluating their presence in China. The U.S. has imposed stricter tariffs on Chinese steel products, adding pressure to already challenging market conditions. POSCO’s 27-year collaboration with Shagang Group marks the end of an era as the company looks to refocus its resources on more profitable ventures and its future growth strategy.