“More Transformers Needed” ... U.S. Data Center Demand Brings Tailwinds for Korean Power Equipment

[Financial News] South Korea’s exports of large transformers have surged since the start of the year, fueled by the replacement of aging power grids in the United States and increased investment in AI data centers. The country’s three major power equipment makers are responding to rising demand by expanding production facilities at home and abroad.
According to Korea Customs Service trade statistics on the 27th, exports of large transformers totaled $463.95 million (about 615.7 billion won) in the third quarter of this year, up 53.9% from the same period a year earlier.
Transformers adjust the voltage of electricity received from outside and supply it where needed. Large transformers rated at 10,000 kVA or more are generally used at power plants and large industrial facilities. They are also used in transmission and distribution networks that supply electricity to AI data centers.
The United States is the main destination for transformer exports. In the third quarter, exports of large transformers to the U.S. totaled $288.81 million, up 64.5% from the same period a year earlier. The U.S. share of total large-transformer exports rose from the 30% range in 2023 to 62.3% in the third quarter of this year.
The expansion of U.S. demand for transformers is being driven by the convergence of efforts to replace aging power grids and build AI data centers. The country needs to replace existing power facilities while also expanding transmission and substation infrastructure to supply electricity to large data centers. Rising electricity use across industries is also supporting demand for transformers.
Domestic companies are responding to growing transformer demand by expanding production capacity. HD Hyundai Electric Co., Ltd. plans to complete an expansion of its Ulsan plant in the fourth quarter of this year and bring its second ultra-high-voltage transformer plant in Alabama online in the first half of next year. It also plans to equip its U.S. production base with testing and production facilities for 765-kV-class ultra-high-voltage transformers, which are needed to build ultra-high-voltage transmission networks.
Hyosung Heavy Industries plans to invest $157 million (about 208.3 billion won) in its Memphis plant in Tennessee and expand local production capacity by at least 50% by 2028. LS ELECTRIC Co., Ltd. invested 100.8 billion won in its Busan facility last December and completed construction of a second ultra-high-voltage transformer plant there.
Some have raised concerns that demand for ultra-high-voltage transformers could slow as data centers expand their own power generation facilities. However, analysts say it is too early to conclude that the industry has peaked. The outlook is that orders for South Korean power equipment makers will continue to grow as demand for grid expansion driven by data centers adds to the need to replace aging facilities.
Jang Nam-hyun, a researcher at Korea Investment & Securities Co., Ltd., said, “Alongside their own power generation, data center operators are increasing investment in transmission networks and substations to ensure a stable power supply.”
Earnings expectations for the three major power equipment makers are also rising as orders expand. According to financial information provider FnGuide, HD Hyundai Electric Co., Ltd. is expected to post annual operating profit of 1.205 trillion won this year, up 21.1% from the previous year. LS ELECTRIC Co., Ltd. is forecast to record annual operating profit of 720.6 billion won, up 69%. Hyosung Heavy Industries is projected to post 1.1014 trillion won, an increase of 47.5% year on year.
[email protected] Park Ji-yeon Reporter