[Column] Implications of Korea Zinc's Decision to Invest in a U.S. Smelter

Recently, Korea Zinc announced that it is pursuing a project to build a zinc smelter in the United States in cooperation with the U.S. government. The company explained that it aims to expand its global supply chain and strengthen strategic partnerships through a joint venture in the U.S., thereby enhancing its corporate competitiveness. The market welcomed this news as a positive development, leading to a rise in the stock price. However, it is also necessary to soberly examine the risks inherent in this project.

First, there is the possibility of weakened competitiveness due to a deterioration in corporate governance. Typically, a joint venture establishes a separate entity by sharing equity with a local company, and participates directly in the business through this entity. However, Korea Zinc has structured its U.S. joint venture to participate in a paid-in capital increase of Korea Zinc, with those funds then being invested in the construction of the U.S. smelter. As a result, the shares of Korea Zinc held by the joint venture will influence the company’s major decision-making. Given that the capital increase exceeds 10% of the total shares, this could result in significant changes to the company’s governance structure in the future.

The issue is that Korea Zinc’s governance is not merely a matter of corporate management. The company’s smelting technology has such strategic value that it is designated as a national core technology. The U.S. smelter, which will be modeled after the Onsan smelter, will inevitably be based on this core technology, effectively meaning the transfer of national core technology. Changes in the parent company’s governance could spread across the industry, potentially impacting national competitiveness in the long term and triggering the emergence of new global competitors. Even if the transfer appears legally compliant on the surface, it could gradually undermine the competitiveness of both the company and the national industry.

Even if technology leakage is prevented, another risk remains. Structurally, Korea Zinc faces a high probability of falling into a zero-sum game. According to the International Lead and Zinc Study Group, the zinc and lead markets are expected to face oversupply after 2026. If both the Onsan smelter in Korea and the U.S. smelter operate simultaneously, profitability will inevitably deteriorate. Considering the enormous construction and investment costs, the financial burden will only increase. Ultimately, Korea Zinc will be forced to adjust production at both smelters to maintain profitability. However, given that the joint venture structure allows the U.S. government to influence decision-making, it remains questionable whether Korea Zinc will be able to independently adjust production volumes in the U.S.

Second, Korea Zinc is not simply a metal processing company, but one that affects all core national industries including steel, batteries, semiconductors, displays, and defense. From the perspective of structural gaps, Korea Zinc’s products serve as a crucial link between industries. Due to this structural characteristic, there are virtually no substitutes. Therefore, if Korea Zinc experiences production disruptions or supply instability, the impact will immediately spread across related industries.

As technological hegemony competition intensifies, the protection of national core technologies is becoming even more important. Considering that most industries related to Korea Zinc’s products are Korea’s core industries, this decision is directly tied to national technological security. This goes beyond a mere corporate strategy.

Founded in 1974, Korea Zinc has accumulated world-class smelting technology for over half a century. However, in order to build the U.S. smelter, the company has made the unusual managerial decision to provide payment guarantees for the entire 7 trillion won in borrowings. This implies not only financial risks but also the potential undermining of the corporate value and future competitiveness built over the past 50 years. Now is the time to prioritize long-term corporate value over short-term results.

Yoo Kiseop, Professor of International Business, Sun Moon University