Hyundai Steel picks Donaldsonville as $5.8 bn US plant site, seeks investors

South Korea’s Hyundai Steel Co. has chosen Donaldsonville, Louisiana, as the location for its $5.8 billion US steel mill, marking a major strategic investment in the US steel industry.

Hyundai Steel is also in discussions with multiple investors, including US automakers and steel producers, to secure equity investments to help finance the multibillion-dollar project, people familiar with the matter said on Friday.

Hyundai considered several locations, including Georgia and Texas, but picked an industrial complex in Donaldsonville as the site for a new steel mill after taking into account conditions such as logistical efficiencies, lower electricity costs and tax incentives, sources said.

Located in the southeastern part of Louisiana along the Mississippi River, Donaldsonville is a key transportation hub with direct access to major industrial infrastructure.

While announcing a $21 billion US investment plan through 2028 earlier this week, Hyundai Motor Group said some $6 billion will be allocated to enhance the group’s parts and logistics business, as well as to establish an advanced steel mill in the US with an annual steel production capacity of 2.7 million tons.

STRATEGICALLY LOCATED

The city is also home to facilities operated by Nucor Corp., the largest steel producer in the US.

Industry officials said Donaldsonville is positioned along the lower Mississippi River, enabling seamless transport of raw materials and finished steel products.

The river connects to northern US states like Minnesota while also providing a direct maritime route through the Gulf of Mexico to Hyundai Motor Co.’s factory in Savannah, Georgia.

Inland distribution to Hyundai’s other manufacturing facilities in Montgomery, Alabama, and Hyundai Motor Group Metaplant America LLC (HMGMA) in Ellabell, Georgia, is also possible via rail and trucking networks.

LOUISIANA OFFERS TAX BREAKS, GAS FOR STEELMAKING

Louisiana’s prominence as the US natural gas hub also played a role in the selection process, sources said.

Hyundai Steel plans to employ direct reduced iron (DRI) technology, which requires substantial amounts of natural gas to produce steel.

Unlike traditional blast furnaces, which rely on coke to melt iron ore, the DRI method reduces oxygen from iron ore in its solid state, with natural gas serving as the primary reducing agent.

Louisiana, home to vast natural gas reserves and multiple liquefied natural gas (LNG) terminals, is well-positioned to supply the necessary fuel at competitive prices, sources said.

The Henry Hub, a distribution hub on the natural gas pipeline system, is also located in Erath, Louisiana.

Due to its importance, it lends its name to the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX) and the OTC swaps traded on Intercontinental Exchange (ICE).

In addition to energy advantages, Louisiana offers significant tax incentives, including a 10-year exemption from local property taxes on industrial equipment and facilities, according to sources.

EQUITY INVESTORS

Hyundai Steel is working to secure funding for the project.

Hyundai Motor Group, which owns Hyundai Steel, plans to finance roughly half of the total investment of 8.5 trillion won ($5.8 billion) through equity investments by Hyundai Motor affiliates and external investors.

The remaining capital is expected to be raised through debt financing, with Hyundai Steel ruling out a rights issue.

Sources said the steelmaker has received investment proposals from more than 10 companies, drawn by the plant’s clear demand from Hyundai Motor and sister automaker Kia Corp., as well as the steel mill’s strong technological capabilities.

“Many companies see this project as a high-potential investment, given the clear customer base and Hyundai Steel’s technological expertise,” said an industry source.

ADVANCED STEELMAKING TECH

Hyundai Steel is advancing its steelmaking technology.

The company plans to build an electric arc furnace (EAF) using DRI technology, which emits significantly lower carbon dioxide compared to conventional blast furnaces.

US environmental regulations have effectively prohibited the construction of new blast furnaces, which typically emit around two tons of carbon dioxide per ton of steel.

By contrast, the DRI-EAF method reduces emissions to less than half that level.

One of the challenges with electric arc furnaces is maintaining high product quality, as impurities can limit their ability to produce advanced steel grades.

Hyundai Steel’s use of DRI, however, enables it to manufacture high-strength automotive steel, a key component for Hyundai Motor’s next-generation vehicles, according to company officials.

Rival steelmakers such as Nucor and Sweden’s SSAB have deployed DRI-based EAF technology to produce premium steel.

Hyundai Steel said it has already developed prototype materials and supplied samples to Hyundai Motor as well as European automakers for testing.

Write to Woo-Sub Kim and Hyung-Kyu Kim at duter@hankyung.com

In-Soo Nam edited this article.