South Korean power equipment makers are riding a wave of export growth, with their transformers in high demand amid a global rush to reinforce power grids and connect new data centers. Demand is particularly strong in the US.
According to the Korean alternative data platform KED Aicel on Tuesday, exports of large transformers – rated at 10,000 kilovolts ampere (kVA) or greater – to the US market jumped 540% to $27.1 million in the first 10 days of this month from about $4.2 million in the year-earlier period.
The growth rate marks a dramatic acceleration from a 297% rise for the whole month of April and a 109% increase in May.
Analysts said the strong momentum underscores growing reliance on Korean suppliers to ease bottlenecks in US power transmission.
Data showed that Korea’s three majors – Hyosung Heavy Industries Corp., LS Electric Co. and HD Hyundai Electric Co. – are all experiencing a rush of orders.
Rising investment in power networks, an AI-led boom in data centers and growing pressure to modernize aging grid infrastructure are fueling the recent expansion.
At a tech conference in March 2024, Tesla CEO Elon Musk said: “I’ve never seen any technology advance faster than this. The chip shortage may be behind us, but AI and EVs are expanding at such a rapacious rate that the world will face supply crunches in electricity and transformers next year.”
Market analysts said the strong upcycle for Korean producers could last for years.
TRANSFORMER EXPORTS AT NEW HIGHS
According to KED Aicel, transformers have been the best-performing among those export items classified by Aicel for the past three months in a row.
The total export value for large transformers with 10,000 kVA capacity stood at $32.96 million in the first 10 days of June, up 188% from $11.45 million in the year-earlier period, outperforming biotech products’ 126% on-year rise and medical equipment’s 93% growth.
Transformer exports accelerated from a 69% on-year rise to $103.4 million for the entire month of May and a 64% increase to $98.4 million in April.
A power transformer is a device that increases or lowers the voltage of electricity generated at a power plant before it is transmitted to homes and factories across vast networks. Rising electric vehicle usage, growing policy incentives for low-carbon energy and enhanced energy security measures are all adding to the upward pressure on demand.
According to BloombergNEF, which tracks investment in the global energy transition, annual investments by energy firms in power grids are expected to reach $532 billion by 2030, more than double from a decade earlier.
“With strong policy support for grid expansion, especially in North America, Korean companies with their advanced technology are well placed to outperform their competitors for years to come,” said Kim Tae-hyun, an analyst at Seoul-based IBK Securities Co.
US SUPPLY GAP OPENS OPPORTUNITY FOR KOREAN SUPPLIERS
Wall Street analysts said a growing shortage of large power transformers in the US is boosting Korean makers’ exports.
Nearly all Korean firms’ shipments are headed for the US market, 82% of overall transformer exports in the first 10 days of June, reflecting strong local demand and limited production capacity there.
J.P. Morgan estimates that US large power transformer demand will grow to 1,800 units by 2028 from 1,400 units this year, thanks in large part to the data center boom to support AI activity and the need to replace aging grids.
Currently, the US can produce about 274 large transformers a year – a number expected to reach 464 by 2028, implying growing reliance on imports.
Analysts said Korea stands to be a major winner from the shortfall.
According to US customs data, Korean firms exported about 350 large transformers last year, outperforming Taiwan’s 150 units and China’s fewer than 100.
In the US, Korean companies are also leading the pack in production capacity. HD Hyundai Electric’s Alabama plant and Hyosung’s Tennessee plant are turning out 120 and 100 large transformers a year, respectively. Both firms are ramping up their US production lines.
Hyosung HICO Ltd., Hyosung Heavy Industries’ transformer-manufacturing US subsidiary, said in March that it plans to double its annual transformer output at its plant in Memphis, Tennessee, over the next two years.
STOCKS RALLY, BUT ROOM FOR GROWTH
Shares of Hyosung Heavy Industries, HD Hyundai Electric and LS Electric have soared 58%, 46% and 47%, respectively, from the end of March. Yet, many analysts say there’s further room for growth.
Rising product prices alongside strong policy incentives for green energy and growing grid investment suggest their upward momentum is far from over.
The new Lee Jae-myung administration is furthering stimulus with its pledge to build a 620 km underwater high voltage direct current (HVDC) energy highway from the country’s west coastline to its industrial heartland of Seoul and its surrounding area by 2030 – a project valued at hundreds of millions of dollars.
Meanwhile, J.P. Morgan has maintained its overweight rating on HD Hyundai Electric and Hyosung, noting strong fundamentals and limited policy or economic downside related to their future profits.
By Tae-Ho Lee
thlee@hankyung.com
In-Soo Nam edited this article.
