By Heekyong Yang and Hyunjoo Jin
SEOUL (Reuters) -In late March, as investors kept hammering Hyundai Steel shares after the South Korean steelmaker announced a $6 billion investment in the U.S., the company organised a call with a dozen investors to calm nerves over the project that lacked detailed funding plans.
"We apologise that the plan was announced when some of the details are still under review," a Hyundai Steel official told them about the deal, part of a $21 billion U.S. investment package its parent Hyundai Motor Group unveiled at the White House on March 24.
"But we had to move quickly in light of fast developing U.S. tariff situations and the limited capacity of our government to actively respond," he said, according to a transcript of the call seen by Reuters and confirmed by a person with direct knowledge of the closed-door meeting. The remark referred to the political vacuum stemming from former President Yoon Suk Yeol’s impeachment.
Four Hyundai executives and government officials told Reuters that they hoped the investment would pave the way for Hyundai and South Korea to push for more favourable terms in tariff negotiations with the U.S.
South Korean senior government officials are set to have talks with their U.S. counterparts in Washington on Thursday, as they seek exemptions or reductions on tariffs.
But some investors, trade experts and workers are concerned over whether the hastily drawn-up plan will actually help South Korea win trade concessions.
Two days after the White House event, President Donald Trump announced 25% tariffs on imported autos, with no exemptions on Korean products.
"What would be longer-term benefits as U.S. tariff and trade policies could change again when the new plant is up and running in 2029 and Trump wouldn't be in office any longer?" asked one investor on the call.
Other questions raised included why the plant would be built in Louisiana, which does not neighbour states where its client Hyundai Motor has auto plants, what concessions it is expecting from the U.S., and whether Hyundai would be able to secure enough customers to fill up the capacity.
Hyundai Steel's stock has lost 21.2% of its value since the investment was announced, lagging rival POSCO Holdings' 18.3% loss and the benchmark index's 5.5% fall. Hyundai Motor shares fell 12.9% during the same period.
The investment plan comes as Hyundai Steel grapples with weak domestic demand, an influx of cheap Chinese steel and labour strikes over a wage deal that was agreed only recently. It reports quarterly results on Thursday.
Analysts warn the investment could also increase financial stress on the struggling steelmaker and it may have to scale back the capacity of the new plant, which is expected to produce enough steel to make 1.8 million vehicles a year, well above the combined production target of 1.2 million units by Hyundai and its affiliate Kia in the U.S.
"If the project turns out to be financially unviable, the company is likely to scale it back or delay execution. At this stage, the announcement may be more about political signaling than a firm commitment," said Chan H. Lee, managing partner at Petra Capital Management in Seoul.
Hyundai Steel said in a statement it expects "stable demand" for automotive steel in the United States, the world’s largest car market, and that its planned U.S. facility will supply high-quality, low-carbon steel products to both Hyundai-Kia and other U.S. customers.
The company added that its investments and tariff negotiations are "separate matters." Addressing concerns about its domestic operations, Hyundai Steel said it is working to enhance the competitiveness of its South Korean factories.
Hyundai Steel said it would fund 50% of the U.S. investment with borrowing but has yet to disclose how the rest of investment would be split among potential equity investors. It said earlier this week local rival POSCO would make an equity investment in the project.
UNUSUAL
Hyundai Motor and affiliate Kia, which together generate about one-third of their global sales from the U.S. market, have been courting Trump since his election win in November. South Korea is the second-biggest exporter of cars to the United States after Mexico.
Hyundai Motor donated $1 million to Trump's inaugural fund and also invited him to an opening ceremony of its new Georgia car factory in late March, Hyundai Motor Group Executive Chair Euisun Chung told reporters at the event in late March.
After being briefed about Hyundai's U.S. steel factory plan, Trump invited the chairman and other Hyundai executives to the White House, Chung said.
"It's quite unusual to announce an investment plan at the White House, as we would normally organise such events with state governments where we are investing," a person familiar with the matter told Reuters, declining to be identified as he was not authorized to speak to the media.
"It appeared the White House wanted to tout our investment as an example showing that its tariff policy works."
For Hyundai Motor Group, the investment plan has not gone any further beyond the flashy announcement for now, as South Korea is hoping to negotiate a reduction in the 25% tariffs Trump has imposed on South Korean goods (since suspended for 90 days) or give exemptions to a separate 25% levy imposed on imported vehicles and steel.
Chung told reporters that he does not expect one company's investments alone to bring a major change in U.S. tariff policy and its new U.S. factory is to meet potential requirements for low-carbon steel rather to prepare for tariffs.
"Tariffs are a state matter between a country and a country," he said, adding Hyundai and South Korean government will hold talks with the U.S. administration.
"We are closely monitoring new policy developments and continually review various business strategies to ensure long-term profitability", Hyundai Motor Group said in a statement, adding it still plans to invest 24.3 trillion won ($17.05 billion) in South Korea this year.
Some experts also had reservations about how big a role Hyundai's investment would play in tariff talks between Seoul and Washington.
"Typically in trade negotiations, each side avoids making early unmatched concessions, preferring a package deal approach. But these are not normal times," said Wendy Cutler, a former U.S. Trade Representative chief negotiator who heads the Asia Society Policy Institute.
She said Korean negotiators would need to remind the U.S. negotiating team of the need to get credit for their investment in any final deal.
"If Hyundai had coordinated with the government and used the investment as part of Seoul's broader packaged offer later, who knows that the outcome might have been a bit different," former trade minister Yeo Han-koo told Reuters.
As uncertainty over trade talks persist, some Hyundai workers in South Korea remain worried.
Kang Do-hoon, a factory worker at Hyundai's Incheon production site that now faces a one-month operation suspension due to weak construction steel demand, said the company's U.S. investment plan is upsetting many workers as they have been calling for more investment in local factories.
"This is the first time we have experienced such a bad situation ... so I am really worried," said Kang, who has been working at the plant for 15 years.
"We feel a great sense of loss."
($1 = 1,425.0100 won)
(Editing by Miyoung Kim and Kim Coghill)
