Companies Unable to Smile Despite Performance Recovery... Replacement of Flagship Subsidiaries in Groups

[Analysis by Im Hee-jin]

[Asia Economy Reporter Park So-yeon] The notable expansion in performance in heavy industries such as steel and refining among the top 10 conglomerates last year can be interpreted as the global economy gradually emerging from the COVID-19 impact and entering a demand recovery phase. However, some argue that this recovery in performance does not necessarily indicate a fundamental strengthening of our industrial competitiveness. While the steel industry posted record-high profits due to rising steel prices, the shipbuilding sector, a downstream industry, suffered massive losses. Although exports of refining companies temporarily increased due to the ripple effect of overseas companies shutting down outdated facilities, this clearly signals long-term industrial decline. The two pillars of domestic industry, semiconductors and automobiles, are also experiencing slowed growth amid global economic uncertainties.

◇ Steel Industry Boom Acts as a Headwind for Shipbuilding = With the steel market recovering, POSCO achieved its highest-ever performance with sales exceeding 70 trillion won from a single company. Among its affiliates, POSCO International (33.9489 trillion won), which showed strong results in trading and investment, led the POSCO Group’s external growth with a 58.1% year-on-year sales increase. On the other hand, despite being in the same heavy industry sector, Hyundai Heavy Industries Group posted its worst performance last year. The group recorded an operating loss of 900 billion won on a consolidated basis across all listed affiliates. Hyundai Heavy Industries itself posted an operating loss of 800.3 billion won, turning to the red. Korea Shipbuilding & Offshore Engineering also recorded an operating loss of 1.3848 trillion won. This was due to rising steel prices and large provisions set following a lost ruling on ordinary wages.

Steel Industry Posts Record High Profits... Shipbuilding, a Downstream Industry, Faces Headwinds
Ripple Effect of Overseas Facility Closures Boosts Refining Exports
Long-Term Decline Inevitable... Structural Overhaul Expected Across Industries

◇ Domestic Refining Companies Unable to Smile Despite Profit Increase = GS Group’s net profit surged 930% year-on-year last year to 2.9 trillion won. Among its affiliates, GS led the profit increase by recording a net profit of 1.6147 trillion won last year, recovering from a net loss of 187.8 billion won the year before. GS Global also turned around from a net loss of 82.1 billion won two years ago to a net profit of 22 billion won last year. This performance boom was thanks to demand, which had shrunk at the start of the COVID-19 pandemic, nearly recovering to pre-pandemic levels last year due to vaccine distribution and normalization of economic activities, causing crude oil prices to surge. Moreover, the restructuring in the global oil industry last year was a positive factor for the domestic refining sector. The closure of overseas refining facilities reduced global oil product supply capacity, allowing domestic refiners to fill the gap. However, the refining industry remains unable to celebrate the profit increase because this improvement is unlikely to continue long-term. An industry insider said, “While the closure of overseas facilities has temporarily improved the business environment for domestic companies, it also indicates that refining is declining in the long run due to carbon neutrality policies worldwide.”

◇ Industrial Overhaul Expected with Changes in Group ‘Flagship’ Affiliates = In the rapidly changing business environment, changes in the flagship affiliates of conglomerates have also emerged. In Lotte Group (59 trillion won), the chemical affiliate Lotte Chemical (18 trillion won) surpassed the group’s flagship Lotte Shopping (15.6 trillion won) in sales, marking a reversal. Lotte Shopping’s sales declined from 17 trillion won in 2019 to 16 trillion won in 2020 and 15 trillion won in 2021. Similar changes are observed in SK Group. The sales gap between its traditional mainstays, SK Innovation (46.8 trillion won) and SK Hynix (43 trillion won), has narrowed to less than 3 trillion won. Until 2019, SK Hynix’s sales were only 27 trillion won, while SK Innovation’s sales approached 50 trillion won. A business insider said, “Each group has undergone tremendous changes due to COVID-19. The structural changes that had been slowly progressing are accelerating as COVID-19 acts as a catalyst, causing growing concerns within each group.”

This content was produced with the assistance of AI translation services.