Loading summary
Transcript1 lines
- [00:03]
A
South Korean President Park Chung Hee believed that steel is national power. He wanted a huge integrated steel mill in South Korea. But the Western powers were skeptical. South Korea was extremely poor, without substantial iron reserves, their workers uneducated. For South Korea to go straight to what was then the most capital intensive heavy industry was to defy economic orthodoxy. Too soon, too inefficient. But Park Chung Hee believed Korea needed steel. So he pushed his country to build what would turn out to be one of the world's most advanced steel companies. In today's video, we go back to the world of steel and recount one of South Korea's most iconic companies, Posco. When Park Chung Hee took power in 1961, South Korea was in a perilous state. The country was still recovering from the devastation of the Korean War. Its security heavily depended on aid from its ally, the United States. But this relationship was testy even in the best of times. And the post war South Korean economy was poor, struggling from trade deficits, low foreign exchange reserves, rampant inflation and stalling growth. The per capita income was about $80, and the country can barely keep itself from starving. To solve this, park imagined a massive industrialization effort to make the South Korean economy self sustaining. This effort needed steel, modern steel made right in South Korea. However, many of the steel mills built during Korea's colonial era were located in North Korea. Prior to the Korean War, President Syngman Rhee tried to build a South Korean steel industry, but failed due to a lack of capital and government coordination. And then there was the Korean War itself, which devastated the country's industrial areas. The bank of Korea calculated that 75% of the country's pre war capacity in steel and iron was destroyed. Park Chung Hee sought to rebuild all that capacity and more. He was convinced that South Korea cannot forge its own other key industries, automotive, shipbuilding, heavy industry, without first making steel. Thus, he made iron and steelmaking the focus of his administration's first and second five year development plans. To build a massive integrated steel mill, the South Koreans needed expertise and lots of cash. Park Chung Hee arm twisted for chaebo to form Korea Integrated Steel Mill Inc. And sought partners. They first approached West Germany. An agreement was signed for a feasibility study in March 1962, but fell through due to a lack of financial resources. Korea, integrated, tried again in late 1962, agreeing with an American investor consortium for a steel mill in Ulsan with capacity of about 250,000 to 300,000 tons per year. The issue again, however, was getting the money. Park's administration took control of the Central bank and financial sector funnel domestic savings towards his projects. But the South Korean people were very poor back then. There was not enough domestic savings. So if he wanted to get enough money to build an integrated steel plant, it had to come from abroad. The South Korean government first turned to the Americans for economic aid. But this turned out to be tricky. Both the U.S. agency for International Development and the U.S. import Export bank declined. The U.S. government was urging park towards democratization and civilian rule. Issuing foreign aid felt like sending the wrong message. USAID also remarked that the South Korean government should be focusing on other sectors like energy, transportation, machinery and communication rather than steel. But Park Chung Hee single mindedly pursued steel. After the Korean integrated steel failure, he deployed personal diplomacy for his next effort effort. During a U.S. trip in 1965 to meet American President Lyndon Johnson. He also traveled to Pittsburgh to visit Jones and Laughlin Steel Corporation's Alquipa plant. Reporters reported him watching the steelworks and saying, this is the most impressive. All this fine modern equipment. During this trip, park met with Fred Foy, the chairman of Koppers, to discuss cooperation. Koppers was then one of the world's leading steel mill engineering firms. Foy was receptive to building a plant in South Korea, as was the World bank at the time. Thus formed in December 1966 a consortium of players from the US and Europe called Korea International Steel Associates or KISA. Their goal was to raise money for and build a modern steel mill and in South Korea. Kisa's job was to build a steel mill. And park was not screwing around. He announced the steel mill during his presidential campaign in 1967. When progress stalled for a few months, park replaced his deputy Prime Minister and the head of his Economic planning board. The new board then negotiated a contract with KISA coming to a tentative agreement in April 1967 where Kissa would raise $130 million per from both foreign and domestic sources to fund a 600,000 ton capacity integrated steel mill. Meanwhile, Park Chung Hee began looking at potential Korean partners to lead the steel mill build. By the summer of 1967, one company emerged as the leader to do it. Korea Tungsten Mining. Led by one of South Korea's rising stars, TJ Pak Park Tae Joon. I shall refer to him as T.J. because Park was born in 1927. As a child, he went to Japan with his father for work. He then studied business at Waseda University before returning to Korea upon the end of World War II. He then joined the military where he fought with honor in the Korean War. TJ first met Park Chang Hee at the military academy when the former was a cadet and the latter a company commander. The elder park took a liking to the cadet and respected his intelligence and also trusted him. TJ did not participate in the 1961 military coup, supposedly because if the coup were to fail, then TJ was to look after Park Chung Hee's family. After the coup succeeded, TJ served as Park Chung Hee's chief secretary for three years. He then declined to return to the military and and in 1964 was sent by his government to Japan to build up business contacts within industry. He returned to South Korea a few years later and was put in charge of a state owned enterprise called the Korea Tungsten Mining Company. The company controlled Sangdong Mine, one of the world's largest tungsten mines and was one of the few sources of foreign currency for the country, but had fallen into hard times. With effort, he brought them back into the black. Park Chung Hee ordered TJ to start preparations for the construction of Kisse's integrated steel mill. First things first, where to put it. They spent a year evaluating five different sites, including Ulsan. In the end, they chose a sleepy fishing town with about 50,000 residents. Pohang. Ulsan was the original frontrunner. But their own growing industry meant they no longer had available space. Pohang still had lots of open land and fresh water, as well as a deep water harbor to receive iron ore and coking coal. It was also far enough from North Korea to not be immediately threatened by artillery and far enough from Seoul to diversify away from the megacity. Local officials emphasized the mill's impact potentially on the then impoverished Korean east coast. Thus, in April 1968, the Pohang Iron and Steel Company was founded as a private entity with 300 million won from the government and 100 million from Korea. Tungsten. Almost immediately they called it Posco. But meanwhile, KISA was in trouble. A seven member cross cultural consortium was always going to be unwieldy, but. But when the Americans began to waver on the issue, the West Germans and British did too. Neither government opted to loan money towards the project. At the heart of the issue were divergent views between the World bank and the South Korean government about the plant's size. The Koreans wanted a very large steel making plant capable of someday producing 1 to 2 million tons of steel per year. The World bank felt that was too much. They did a feasibility study in 1966 that asserted that the largest steel mill that the South Koreans can economically support was just 500,000 tons. 2 million tons of capacity threatened to tip over the global steel market. Finally, in November 1968, the World bank officially declined a loan for Kisa steel mill. They recommended that the country pursue light industry instead. A steel mill was premature and not economically feasible. Kissa dissolved a few months later. By then, the South Korean economy was starting to gather steam. Thanks to several major construction projects, iron and steel consumption was growing rapidly and well ahead of projections 15% year over year. In 1967, without an integrated steel mill that can turn iron ore into pig iron and then pig iron into finished steel, South Korea relied on small privately owned electric arc furnaces that melted down scrap steel. And at about 10,000 tons each, these mills lacked scale. Whatever shortfall had to be fulfilled with imports. In 1965, South Korea was only 61.3% self sufficient in steel. Two years later, in 1967, that ratio had worsened to 58.4%. With the west proving unreliable, Park Chang Hee turned eastward. The United States government had long wanted their allies, Japan and South Korea to make peace and normalize relations. It would help strengthen each other and shore up anti communist forces in Asia. The growing Japanese economy also sought access to new markets and and the United States was not open to granting further access. The American diplomats positioned normalization as a way for Japan to develop a geographically close market. This was never quite possible. While Syngman Rhee, a former Korean independence activist, was in charge. The historical wounds left behind by the Japanese occupation were too fresh. Anti Japanese sentiment, very strong. Park Chang Hee was a different man, being educated in Japanese institutions and trained in their military. More importantly, he was pragmatic and ready to move on if that meant economic opportunities for his country. Soon after taking power, Park Chang Hee entered normalization talks with Japan and in 1965 they signed a treaty. As a part of the reparations, the Japanese prepared some $500 million in grants and long term loans to settle property and claims issues. When KISA began to fall apart in 1969, park thought to use some of the Japanese reparation funds to build his long desired integrated steel mill. This was not as easy as it might seem. The agreements were already signed. The Japanese government initially declined to join kisa, generally agreeing with the Westerners about the project's infeasibility. To secure their agreement, Park Chang Hee pursued a two track first, direct government to government negotiations, which emphasized the value of a stronger South Korea as a deterrence against communist aggression. Second, TJ leveraged his own personal ties to Japanese industry. Japan's three largest steelmakers quickly got on Board. The main issue was the Japanese government, most of all its powerful Ministry of International Trade and Industry. MITI TJ met with midi's Minister Masayoshi Ohira, a future Prime Minister, and pressed the strategic importance of steel, evoking the history of Japan's own steel industry, including how Japan decided to build the massive Yawata steelworks in the late 1800s without concern to economic viability. It was simply a question of strategic necessity. In August 1969, Korea's Deputy Prime Minister announced that the Japanese changed their minds and were ready to back the steel project. Yes, it was in part due to Park Chang hee's determination and TJ's fervent lobbying. But it was also just smart business. Kisa's collapse in early 1969 gave Japan the opportunity to lead the project without American or European interference. And the home Japanese steel market was already oversupplied with social repercussions regarding steel pollution issues. Exports to Korea can maintain sales of steel making equipment without further exacerbating the domestic situation. This in part explains why the Japanese steel companies were so in favor. The Koreans played on this with one official quoted as saying, if you help us build a steel mill, your exports are guaranteed and you can sell machinery. And lastly, the Japanese government saw Park Chung Hee's determination to build his integrated steel mill plus the country's skyrocketing steel demand, and realized that if they passed, then someone else, maybe the Germans, would eventually step up. In November 1969, the two began negotiating on the cooperation details. South Korea had earlier submitted a project proposal for a 1 million ton capacity integrated steel mill, along with cost estimates and requests for technology. Japan opened negotiations with a 64 page counter proposal. They budgeted the mill to cost 25% more and require a year longer than what was in the Korean estimate. They also decline Korea's request to transfer an advanced steel milling technology called continuous casting. This game changing technology lets a mill cast molten steel directly into finished shapes like sheets, wires and rods. Otherwise, the molten steel must first be cast into intermediate shapes like ingots or billets before reheating to produce the final shape, an energy intensive process. The Japanese offered Posco this older technology. From November 19 to 21, 1969, the two sides clashed, south Korea demanding the continuous casting technology as well as an accelerated construction schedule. The Japanese, on the other hand, sticking to their conservative assessments. The arguments went late into the night. Finally, on the 21st, the two sides reached a compromise. The South Koreans agreed to Japan's delayed a middle number budget of $123 million between Korea's 100 million and Japan's 131 million estimates and the older slabbing technology for the main steel line. However, Japan did concede to include a smaller continuous casting unit. The deal was signed in December 1969 between the South Koreans and Japan's big three steelmakers. Construction would begin in April 1970, with anticipated completion in July 1973. As work began, TJ made clear the enormity of their task. In June 1968, as preparatory work began on track and water infrastructure in Pohang, he gave a speech to his construction staff. A commonly cited quote cleaned up, but probably real has him. This steel mill is being built with the Korea. Japan claims settlement funds the price paid in the blood of our ancestors. If we fail, it will be an unforgivable sin in history. In that case, we should all march out of the construction site office, turn right and throw ourselves into Yonggil Bay. Posco could not have existed without nation state resources. Like as in Japan, the South Korean central government built out Posco's infrastructure. The Pohang local government evicted residents lands for the site and a special law was enacted so that energy and water could be provided to Posco at discounted price crisis. Despite that, TJ tried to run Pasco with as much autonomy as possible. And being the President's friend, he got that. But Park Chang Hee nevertheless remained deeply involved. Visiting the phase one site 13 times during the build between 1970 and 1973, Pasco substantially leaned on the Japanese for phase one. The Korean engineers were asked to supervise and learn. But TJ did make efforts to find separate sources of coke and iron for Posco, separate from the Japanese trading companies. TJ also exercised some financial cunning by having the steel mill built backwards. Usually, steel mills are built forwards. So from iron making to casting to rolling into finished product. But that means the mill doesn't generate revenue until the whole thing is done, and that could take three years. Posco was in need of immediate income. So TJ asked to build the Phase one facility the opposite way from rolling to iron making, so that Posco could import semiprocessed steel slab and use that to make finished products to sell. Workers pushed through brutal sandy wind conditions. They worked so hard that they were too tired to go back to their quarters to sleep and slept in the offices or on the roadsides. When the initial foundation fell behind schedule, TJ mobilized massive resources to correctly but quickly pour tens of thousands of tons of concrete to catch up. Add in an unexpected shipbuilding boom that caused demand for plate steel to skyrocket. And the result was Posco turning profits in its second full year, 1970, far ahead of expectation. The rest of the phase one build was completed on time, July 1973. The three years it took outclasses the usual four to nine years in other countries. By then, Park Chang Hee's heavy and chemical industries drive was in full effect. A powerful thrust to build up the country's military industrial capacity to defend against North Korea. Steel would be at the heart of this. So. So President park called to raise South Korean steel capacity from 1 million tons in 1973 to 10 million by 1980. Bosco thus embarked on a massive expansion that added almost 6 million tons of steel over five years. Phases 1 to 4 By then, the Koreans had been trained and taken over for the Japanese. Throughout this, TJ navigated delicate geopolitics, domestic politics, Park Chung Hee was assassinated in 1979 and a substantial steel market glut in the mid-1970s. After phase three was completed, TJ again went to the aging president a few hours before the latter's assassination, apparently, and secured authorization to build a second mill next to Pohang. Guangyang Steel. Begun in 1982, the Guangyang Steel mill adopted all the latest technologies like the basic oxygen furnace, continuous casting and computer control. And by laying these units out in an innovative single line, Guangyang's steel costs were 60% that of the average American steel mill, good enough to start selling into the Japanese markets and compete with the Japanese steel giants. The student had now become the master. Today, Posco is one of the world's most efficient and advanced steel companies. Measured by pure steel production in 2024, the company is eighth place, one of the few non mainland Chinese producers to rank in the top 10. And they rank very highly, probably maybe even the top in terms of efficiency. They also have a large geographical footprint, particularly the mainland Chinese market, which they entered in the 1990s with great benefit. China to this day remains one of their top export destinations. Few steel companies have an origin story so deeply intertwined with their country's rise from poverty. South Korea went to the limit to get their chance to build their integrated steel mill. And the men and women of Posco responded. Alright, everyone, that's it for tonight. Thanks for watching. Subscribe to the Channel. Sign up for the Patreon and I'll see you guys next time.