Episode 88: Dealing with Pemex
Lee Chang-jin asked again.
“An investment proposal… Could you be a bit more specific?”
“The capital requirement (Equity) on our side is about 4 million dollars. So, we’re asking if you could invest around 25% of that.”
“That would be approximately 1 million dollars then. Not a small amount.”
As Lee Chang-jin hesitated to respond, Jimenez, getting anxious, added a remark.
“If Mr. Lee invests, we will supply corresponding goods under an annual contract. For the next 20 years, we’ll provide 10,000 tons annually. How does that sound?”
“Hmm, it’s not a bad condition.”
Lee Chang-jin calculated quickly. Considering the import price of titanium dioxide and domestic tariffs, even after removing customs duties, the profit would be at least $0.70 per kg. That’s $700 per ton.
For 10,000 tons, it would amount to a whopping 7 million dollars. The issue was when he could recoup the investment.
“Is it difficult to supply the quantity immediately?”
“Yes, since we have existing clients…”
“Then, if we replace the equipment with the latest technology to supply the quantity as soon as possible, how long would it take?”
“Hmm… It would take roughly 24 months.”
“That’s quite a long time to wait with hands tied. Is there no way to receive the quantity earlier?”
“Sorry, but the current production is already pre-sold to buyers, so we have little flexibility.”
Lee Chang-jin thought to himself.
One million dollars. Adding the 5 billion won received as advance payment for the Jubail project, 400 million won from the construction company acquisition, and 1.3 billion won accumulated from the precision machinery business, it was a manageable amount.
But a 2-year period was too long.
Considering when profits would start, it wasn’t a very attractive investment option.
During South Korea’s high-growth era, there were plenty of investment opportunities.
An unexpected idea suddenly struck Lee Chang-jin as he hesitated.
“Wait a minute, do I need to take the finished product from the start?”
With a hopeful thought, Lee Chang-jin asked again.
“Then how long would it take to supply the semi-finished product first?”
“Pardon? Just the semi-finished product?”
“How long would it take if we only upgrade the chlorination facility to supply the semi-finished product?”
“Hmm… In that case, it would probably take about 6 months.”
There it was. Lee Chang-jin smiled confidently.
“How about this: I sign the initial contract and invest 500,000 dollars first. Then, after 6 months when the semi-finished product supply starts, I’ll invest the remaining 500,000 dollars. Instead, how about providing 20,000 tons of semi-finished product annually for 30 years?”
Surprised by the unexpected counteroffer, Jimenez asked back.
“Pardon? If you take the semi-finished product, additional processing will be needed. What will you do about that?”
“I will build a manufacturing plant in Korea to process the semi-finished product. It will be more cost-effective to sell it within Asia. Regarding the introduction of the chlorination process, I’ll pay a royalty, so please provide technical consultation for the construction.”
“Can you manage that? It seems like securing approval and setting up the facilities will take quite a while.”
“Don’t worry about that. If you leave it to us, we can select the plant site, secure approvals, and complete the construction within 12 months, including the 6 months for placing orders.”
Koreans were known for their “ppalli ppalli” (quickly, quickly) mentality. Unlike in Mexico, where construction took ages, it seemed much more feasible to commercialize quickly in Korea.
Jung Ho-sung whispered in surprise at Lee Chang-jin’s proposal.
“President Lee, we didn’t discuss this beforehand. Our main focus is on machinery manufacturing and construction. Building a chemical plant is not that simple. The investment alone is 1 million dollars. We shouldn’t rush this decision; we have time to reconsider.”
“Manager Jung, don’t worry. I have a plan, trust me.”
From Lee Chang-jin’s perspective, although handling chlorine gas was tricky and dangerous, processing the semi-finished product, titanium tetrachloride, wasn’t structurally different from the process of sintering bricks.
“Moreover, importing the semi-finished product would not only diversify the sales channels but also significantly increase profitability by selling by-products.”
Processing titanium tetrachloride, the semi-finished product before it turns into titanium dioxide, would yield titanium forgings, ingots, ferro-titanium, titanium powder, and more. These by-products could be sold as steel additives, enhancing profitability.
Surprised by the unexpected proposal, Jimenez was skeptical. He adjusted his expression and sought permission.
“This is not something I can decide alone. I need to review it further and will get back to you within a few days.”
“I will wait until then. I hope for a wise decision.”
After finishing dinner, Lee Chang-jin returned to his hotel.
Although he hadn’t received a definite answer, Jimenez’s wavering gaze gave him confidence.
“From Pemex’s perspective, it’s not a bad proposal. It’s hard to reject when they’re in a tight spot.”
Before 1990, Pemex was far from the mighty global petrochemical company it would later become.
Supplying finished products would take more than 2 years, and considering transportation and quality claims, it was a win-win proposal for both Pemex and Daese Industries.
From an investor’s viewpoint, the sooner the funds are recouped, the better.
As Lee Chang-jin expected, a few days later, Jimenez called him again.
“We have thoroughly reviewed your proposal, Mr. Lee. However, our company finds it hard to accept the guarantee from a third country, so please keep that in mind.”
It was a common request from countries with high country risk.
But Lee Chang-jin had already prepared a solution for this issue.
“No need to worry about that. Doesn’t Pemex have bonded warehouses? We can use a letter of credit and bank credit guarantee instead.”
“Oh, is that acceptable? Very well, let’s proceed.”
Lee Chang-jin drafted the titanium tetrachloride (TiO2 intermediate product) supply contract and exchanged the final signatures between the two companies.
Successfully closing the contract, Lee Chang-jin boarded the plane.
Three days later, at Yeongcheon Plant in Seodaemun District.
As Lee Chang-jin returned to Korea, the scorching summer heat was giving way to a gentle autumn.
Goo Chang-dong and Lee Chang-sik, dressed in work clothes, warmly welcomed Lee Chang-jin.
“Welcome back, President. Was everything okay?”
“Yes. How have you all been?”
“Good. By the way, what’s all that in your hands?”
“Oh, these. I bought some gifts instead of souvenirs. They are Mexican specialties, so take one each.”
Lee Chang-jin had brought tequila, a famous Mexican traditional drink made from cactus, and a set of chocolates from a renowned chocolate shop in Polanco, Mexico City.
“Wow, they look nice. Thank you, President.”
Manager Ye Jin-joo, who had a weakness for sweets, was delighted like a child.
On the other hand, those who received the rare alcohol were busy inspecting the contents.
“Thanks to you, President, our taste buds are in for a treat. But is that really a worm inside the bottle?”
People were curiously examining the plump agave worm (a moth larva that infests agaves) inside the alcohol. Lee Chang-jin teased them.
“Of course, it’s genuine. Check it at home. Oh, I heard from a Mexican that chewing and eating the larva inside the bottle brings good luck.”
“Really?”
Goo Chang-dong stared at the worm, seemingly conflicted.
Whether he would actually try it or not was unclear, but after distributing the gifts, Lee Chang-jin immediately convened a department head meeting.
“Alright, let’s hear the pending reports first. Any notable issues?”
“No. Machine sales and crane orders are on track. Forklift sales are also going well. We expect to exceed 100 units sold this month.”
It was encouraging news. Additionally, Daese Trading reported that while natural dye imports had decreased slightly, increased pump sales had significantly boosted trade profits.
The Jubail Port construction jacket production and the forest road construction part handled by consultants Kim Hak-do and Hong In-young were proceeding as scheduled. Daese Textiles, which developed premium bath products, was expanding sales channels in partnership with Itochu Corporation in Japan.
“However, we received an unusual request. Anyang Steel has requested a sculpture to commemorate reaching 1 million tons of crude steel production, and we are currently discussing how to proceed.”
Interested, Lee Chang-jin asked.
“A sculpture request? What’s that about? Bring it here.”
At his request, Ye Jin-joo, who was on standby, brought the blueprint. It depicted a tower consisting of several overlapping round pipes and bearings, with a height of about 12.6 meters. Uniquely, the entire structure was designed with a steel frame and steel pipes.
“Hmm… This seems more complex than I expected.”
The request included engraving the sculpture’s curved surface, hollowing out the inside, and illuminating it to highlight the text.
To meet the requirements, simply drilling holes wouldn’t suffice. The surface had to be thinly engraved so that the light could pass through, requiring high precision. Additionally, fitting all the text within the limited space meant meticulously adjusting the text size and spacing.
It was a challenging task that was difficult to achieve with the current technology.
“Why do they need this?”
“Oh, they held a contest to commemorate the milestone of exporting 1 million tons, and this was the winning design. They chose it because the frame looked impressive, but when they tried to manufacture it, it was too complex, and all the domestic companies they approached declined the job.”
“So they pointed to us?”
“Yes. Since it seemed impossible, Anyang Steel considered outsourcing it to a foreign company. However, President Yoo Joon-tae suggested that it would be more symbolic for a Korean company to create it for such a national milestone. He said he would ask you after you returned, so we held off. Should we decline?”
Lee Chang-jin pondered for a moment. If President Yoo Joon-tae was involved, it meant the project was considered quite important. Therefore, gaining some points here would be beneficial for future relations.
“Considering the backlog of work until the end of the year, the production schedule will be tight. How much do they estimate the production cost?”
“Around 20 million won. Although we can match the unit price, considering the complexity of the work, the production cost isn’t high.”
“Hmm, it’s a tricky situation. What do the staff think?”
Among the staff who were starting to look at each other, Goo Chang-dong took the initiative.
“From a profitability standpoint, it’s better not to take it. However…”
“However?”
“Although it’s challenging, it’s an opportunity to showcase our technical capabilities. This will definitely make the news and provide some promotional benefits.”
It was a sharp observation. Lee Chang-jin agreed with him.
“Alright, let’s accept the order and produce it. But before making the actual sculpture, let’s create a full-scale prototype. We need to ensure the letters aren’t crowded and test what can only be known by making it.”
Goo Chang-dong, diligently taking notes, asked again.
“Then, what material should we use for the prototype?”
“Start with Styrofoam. Oh, try to find friends who are pursuing a doctorate in fine arts. We can outsource the sample production. Manager Goo, you’re in charge of this project.”
“Yes, understood. Leave it to me.”
After the meeting ended, it was already afternoon.
Having returned after a long time, Lee Chang-jin wanted to see Jin Seon-ah.
“Our potential investor might be upset, so I should first pay a return greeting.”
Muttering to himself, Lee Chang-jin dialed the number with an excited heart.
- To be continued in Episode 89 -
