Korean steel producer, POSCO (PKX) will soon be acquiring a 20% stake in US-based graphene maker, XG Sciences. Financial terms of the transaction were not disclosed.
The graphene maker is a privately held company based in East Lansing, Michigan. It is also one of the two companies; the other being Vorbeck Materials Corp, producing the material for commercial use.
Graphene is used in electronics, especially monitor, touch screen handsets and TVs. It is a form of carbon that is extremely light weight (one atom thick) yet 100 times stronger than steel. The application area of the material being constantly on the rise, graphene nowadays is being used in solar cells, light panels, gas sensors, flexible electronics, satellite and aircraft technology.
POSCO intends to boost its material business through this acquisition and plans to set up manufacturing facilities for graphene in South Korea in collaboration with Hanhwa Chemical. In January the latter had bought a 19% stake in XG Sciences for $3 million. Upon completion of the transaction, POSCO will become the largest shareholder of XG Sciences.
POSCO is the world’s third largest steelmaker on the basis of output. The company primarily manufactures steel for the shipping and construction industries and operates through its two steel production facilities, the Pohang Works and the Gwangyang Works.
We believe that POSCO’s relentless focus on regional diversification, self-sufficiency in raw materials and higher proportion of value-added products in its product mix are encouraging attributes.
However, rising competition and higher raw material costs remain the prime causes of concern. The company faces stiff competition from Arcelor Mittal (MT) and Nippon Steel Corp.
We currently maintain a Neutral recommendation on the stock.
