'Energy Nomads' Crossing Borders: Korean Factories Relocate Overseas in Search of Cheaper Electricity Rates

From Electric Arc Furnaces to Chemical and Power Facilities
Electricity Rates Are Changing Factory Locations
"Energy Is Competitiveness"... Survival Strategies Are Being Reshaped

As the burden of industrial electricity rates in South Korea increases, more manufacturers are either relocating their production bases to regions with lower electricity costs or building new factories overseas. Electricity rates are emerging as a key factor that determines factory locations, going beyond being a simple cost item.

According to industry sources on January 19, energy costs played a role in Hyundai Steel's decision to select Louisiana as the site for its new electric arc furnace steel mill in the United States. Hyundai Steel, together with Hyundai Motor, Kia, and POSCO, is building an electric arc furnace steel mill in Louisiana with an annual production capacity of 2.7 million tons. The investment amounts to approximately 5.8 billion dollars (about 8 trillion won), with construction starting this year and operations targeted for 2029. The company recently completed securing the factory site. Previously, electricity rates were also cited as a major factor when Korea Zinc decided to build a smelter in Tennessee.

Carbon-reduction H-beams produced in Hyundai Steel's electric furnace, used as the framework for buildings. The Asia Business Daily DB

Electric arc furnaces, which melt scrap metal or iron ore to produce molten steel, consume a massive amount of electricity due to the nature of the process. A Hyundai Steel official stated, "Electricity rates vary significantly by region within the United States depending on the source of power generation. Louisiana has a high proportion of natural gas power generation, so electricity rates are relatively low. Since we are building an electric arc furnace, energy costs were an important factor in the site selection process."

In fact, while the average industrial electricity rate in the United States is around 80 dollars per megawatt-hour, Louisiana's rate is known to be in the low 50-dollar range. This is less than half the rate of South Korea's industrial electricity rates. In addition, relatively lower labor costs were also considered as a combined factor.

The conditions surrounding domestic factories are not favorable. Steelmakers that produce rebar and structural steel, which are mainly for the domestic market, have not been able to sufficiently increase their operating rates due to sluggish market conditions. When demand is weak, it is also difficult to reflect rising electricity rates in production costs. A steel industry official said, "With high electricity rates and product prices being fixed, the burden inevitably increases. The trend of seeking overseas production bases due to energy cost issues will only accelerate going forward."

The petrochemical industry, which uses a large amount of electricity, is also highly sensitive to electricity rates. OCI Holdings, which mainly produces polysilicon, is defending its profitability by utilizing relatively low electricity rates through its production base in Malaysia. Even when applying the same facilities and technology, the cost structure changes depending on electricity rates, making energy costs a direct source of competitiveness.

There is a strong sense among domestic manufacturers that the burden of electricity rates is accumulating. Moon Sangcheon, head of LS Electric's Cheonan plant, said, "The burden of electricity rates in the industry continues to accumulate every year. While higher electricity rates may benefit the profit structure of power utilities, for manufacturers who use that electricity, the burden inevitably builds up."

As a result, companies are responding by reducing their electricity usage if they cannot lower electricity rates. LS Electric is considering converting to direct current (DC) to improve factory energy efficiency. The company explained that switching to DC can reduce energy consumption by about 10%. Moon added, "A 10% reduction may seem small, but in places like factories where electricity usage is high, the cost difference is significant."

Despite the initial investment burden, there is also a growing movement to increase energy self-sufficiency in the long term. Companies are attempting to directly manage their electricity usage by building distributed power sources or introducing energy management systems.