Last updated: November 12, 2007 2:26 am

Koreans steal a march with technological breakthrough

As Posco prepares to expand abroad and overtake Nippon Steel of Japan as the world’s third-biggest steelmaker, its groundbreaking Finex technology is central to its plans.

This year, the South Korean company stole a march on its global rivals and revolutionised the steel- making process, becoming the first to commercialise next-generation Finex technology, which is both cleaner and cheaper than traditional blast furnaces.

Lee Dong-hee, Posco chief financial officer said: “Some other countries will only allow us to build plants on condition that we use the Finex technology.

“The Finex technology is the main reason why many Chinese steelmakers want to do joint projects with us – Finex is classified as a new technology.”

Allowing 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.

At its main base in Po-hang, Posco’s Finex test plant is running on a commercial basis, producing 200,000 tonnes more than its 600,000 annual capacity, and the main plant is capable 1.25m tonnes a year.

Posco is now looking to install Finex at plants in Vietnam, India and perhaps even China.

Mr Lee said: “The Finex technology is good to take abroad because it is cheaper to build Finex plants and the production cost is also cheaper as we can use low-grade iron ore and coal to produce steel with the technology.”

Its relative environmental friendliness is also an attraction for international customers, he said. Finex technology reduces air pollution by up to 99 per cent.

In addition to China, Posco intends to take Finex to India, where construction of the $12bn integrated steel mill in Orissa is finally due to start early next year, and to Vietnam.

It plans to complete the Indian project by 2011 and the integrated steel mill will eventually have an annual production capacity of 12m tonnes. Posco is also conducting a feasibility study on building an integrated steel mill in Vietnam, upon the Vietnamese government’s request.

Posco is already building a $500m cold-rolled steel plant in Vung Tau with an annual capacity of 1.2m tonnes. A joint venture with Vinashin, Vietnam’s largest state-run shipbuilder, the $4.5bn project is scheduled to be completed by 2012.

Last month, UBS raised its stock recommendation on Posco to buy, partly because the company’s overseas expansion and Finex technology were not fully priced in.

“With a cheap iron ore source, Finex technology and fast-growing demand on its doorstep, Posco expects costs at India project to be 30 per cent below that of Korea.

“This implies about 48 per cent operating margin for its [hot rolled steel] business,” UBS analysts said.

“Furthermore, Posco is considering expanding into Vietnam. Given Vietnam’s iron ore reserves and fast growing market . . . we believe this expansion will also be a key driver for Posco’s growth,” they said.

The Finex technology produces only 5 per cent of Posco’s steel, but the company is working on building larger capacity facilities.

“Posco is first off the ground and if they are able to scale it up, it will give them a good boost in the longer term,” said one steel industry analyst at an inter- national investment bank.

While Finex is good for Posco, it is also good for Korea as a whole.

It has enabled Posco to take a great technological leap forward – the kind of leap that all traditional Korean industries, including shipbuilding and manufacturing, will have to take.

“Posco has always thought that the company needs its own unique technology to compete with its rivals in the era of global competition,” said Lee Hoo-geun, the managing director of Finex research and development.

“Underdeveloped countries are starting to make steel, and China is catching up very fast, so new technology is very important.”

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