Young Poong busted for polluting water as Korea Zinc takeover battle drags on

The global zinc market faces supply disruption as Young Poong's refinery shuts down for violating laws.

Young Poong's Seokpo zinc refinery in North Gyeongsang. [YONHAP]

The global zinc market is facing a tightened risk of supply disruption as Young Poong, the world's sixth-largest zinc smelter, was ordered by the government to close down its Seokpo refinery in North Gyeongsang for two months for violating a water conservation law.

Young Poong said on Friday in a regulatory filing that the Supreme Court had ordered the shutdown of its Seokpo refinery for a month and 30 days for discharging polluted wastewater without authorization. The Seokpo refinery has 325,000 tons of annual capacity, which makes up around 2.4 percent of global production as of 2023.

Zinc is the fourth most used metal in the world, behind aluminum, iron, and copper in 2023, which are also used in major industries like automobiles, electronics and construction. The metal's production stands at around 14 million tons per year.

“It will require Young Poong around four months of production disruption, combining the preparation period of shutdown and reoperation,” said Park Sung-bong, a researcher specializing in metal at Hana Securities. “The shutdown will accelerate zinc shortages in the local market as well as inevitably pull up global zinc prices.”

Currently, zinc is trading at some $3,000 to $3,200 per ton in global markets. The stocks on the London Metal Exchange stay at lower than 250,000 tons.

Impacted by various mine setbacks, zinc is already in backwardation, with the price trading above three-month futures.

Korea Zinc Chief Technical Officer and Vice Chairman Lee Je-joong, center, chants along with key engineers of the zinc smelter, during a press conference held at Korea Zinc's headquarters in central Seoul on Sept. 24. [NEWS1]

The shutdown comes at the worst time as Korea Zinc, the world's and Korea's largest zinc smelter, is also facing a risk of labor union strikes over its ongoing management control feud with Young Poong. Young Poong is the largest stakeholder of Korea Zinc, and the two companies take up 10 percent of the global zinc market.

The two are in a heated management battle after Young Poong teamed up with private equity firm MBK Partners to launch a tender offer to acquire more shares to obtain management control.

Key engineers and executives at Korea Zinc called the action purchase a “hostile takeover bid,” and vowed to resign if it became a reality.

“If MBK gets control of Korea Zinc, we can't prevent the outflow of our technologies into overseas markets, and it will collapse Korea's industrial competitiveness,” said Korea Zinc Chief Technical Officer and Vice Chairman Lee Je-joong. “Every employee of Korea Zinc will fiercely oppose the takeover.”

BY SARAH CHEA [chea.sarah@joongang.co.kr]