HD Hyundai Electric's ultra-high voltage transformer with advanced cooling systems shown in its Ulsan plant (HD Hyundai Electric)

South Korea’s transformer industry is booming thanks to rising global demand for clean energy and artificial intelligence infrastructure.

Leading Korean manufacturers like HD Hyundai Electric and Hyosung Heavy Industries have seen a significant surge in orders for their high-capacity transformers, which are essential for handling the massive electricity loads required by renewable energy projects and data centers supporting AI.

With their order books full and growing, these companies are now focusing on high-margin contracts, driving profitability to new highs.

Exports surge on strong global demand

Data from the Korea Customs Service on Friday showed that South Korea exported roughly $670 million worth of ultra-high-capacity transformers -- those with capacities of 10,000 kilovolt-amperes or more -- from January to September this year. This marked a 40 percent jump compared to the same period last year when exports were valued at $480 million. It was also more than double the exports in 2021.

After a brief summer slowdown in July and August, exports bounced back in September, with sales topping $100 million that month alone. Korean industry analysts expect this upward trend to continue well into next year.

Record-high backlogs of Hyundai and Hyosung

HD Hyundai Electric and Hyosung Heavy Industries, two of South Korea’s largest transformer manufacturers, are reporting record-high backlogs of orders. By the end of the third quarter, HD Hyundai Electric’s order backlog reached $5.4 billion, up 36 percent from a year ago. Hyosung Heavy Industries reported a backlog of $5.2 billion, a 30 percent increase year-over-year.

(Hyosung Heavy Industries)

This high demand is also helping these companies boost their profit margins. With so many orders in the pipeline, they can afford to be selective and choose higher-value projects that offer better returns. HD Hyundai Electric, for example, has reported operating margins above 20 percent for the past two quarters, up from around 12 percent a year ago. Hyosung Heavy Industries has also seen its margins rise to 14 percent in the third quarter, up from 8 percent in 2022.

Renewable energy and AI

Demand for high-capacity transformers is being fueled by two major global trends: the rapid expansion of renewable energy and the growth of data centers powered by AI. As countries invest in clean energy sources like wind and solar, they need reliable infrastructure to transmit electricity over long distances, and high-capacity transformers are key to this process. Meanwhile, data centers, which support the massive power demands of AI applications, are multiplying globally, and they rely heavily on robust transformer technology to handle high electrical loads.

A 500-megavolt-ampere transformer being assembled at the HD Hyundai Electric's transformer smart factory in Ulsan, South Korea, last November, is set for export to Saudi Arabia’s Neom city project following completion and testing. (HD Hyundai Electric)

The US and Saudi Arabia have been major buyers of Korean transformers this year. The US, which is upgrading its aging power grid, imported about $223 million worth of Korean transformers. This accounts for roughly a third of South Korea’s total transformer exports. Meanwhile, Saudi Arabia has been investing in large-scale infrastructure projects like Neom City, an ambitious, eco-friendly smart city in the desert. It has spent around $203 million on Korean transformers to support these efforts.

With some Korean manufacturers holding more than five years’ worth of orders, they are in a strong position to command premium prices. “Korean transformers are recognized globally for their efficiency and longevity. With expanded production capacity, we’re able to meet the rising demand not only from the US and the Middle East but also from Europe, which is now experiencing an urgent need for high-quality transformers,” said an official from the Korean power industry.

By Moon Joon-hyun (mjh@heraldcorp.com)