POSCO Posts First Ever Loss... Steel Business Takes a Sharp Hit

Chairman Choi Jung-woo Facing Reappointment Next Year, Management Skills Tested Amid Multiple Crises
Automotive Steel Sheet Sales Plummet Due to COVID-19 Impact

[Asia Economy Reporter Hwang Yoon-joo] POSCO recorded its first quarterly loss since the disclosure of its performance. The "steel company" POSCO, which posted profits even during the International Monetary Fund (IMF) foreign exchange crisis and the global financial crisis, has collapsed due to the novel coronavirus disease (COVID-19), causing the industrial sector's mood to also shrink. Amid the overlapping adverse factors of market downturn and COVID-19, evaluations suggest that POSCO Chairman Choi Jeong-woo's management capabilities are being put to the test ahead of next year's reappointment decision.

POSCO announced on the 21st that it recorded sales of 5.8848 trillion KRW and an operating loss of 108.5 billion KRW in the second quarter of this year on a separate basis, excluding the performance of affiliates. Sales decreased by 21.3% compared to the same period last year as global steel demand sharply declined due to the COVID-19 crisis.

POSCO posted an operating profit of 724.3 billion KRW in the second quarter of last year and 458.1 billion KRW in the first quarter when the COVID-19 crisis began. However, in the second quarter, when the COVID-19 crisis intensified, it ultimately turned to a loss. On a consolidated basis including affiliates, POSCO recorded sales of 13.7216 trillion KRW and an operating profit of 167.7 billion KRW. Compared to the same period last year, sales decreased by 15.9% and operating profit by 84.3%. Until last year, quarterly operating profits exceeded 1 trillion KRW but fell to about one-tenth of that level.

The biggest reason for the earnings shock was the shutdown of automobile factories due to the COVID-19 crisis. POSCO explained, "The biggest impact on second-quarter performance was the sharp decline in demand for automotive steel sheets," adding, "Overseas automobile manufacturers stopped factory operations due to the COVID-19 aftermath, reducing automotive steel sheet production from about 3 million tons per quarter to half that amount."

As factories in upstream industries halted operations due to COVID-19, logistics transportation volume decreased, and demand for shipbuilding heavy plates also contracted. With air and sea routes blocked, inventory of oil well pipes also increased. To defend against the demand cliff, POSCO entered production cuts for the first time in 12 years. As a result, POSCO's crude steel and product output in the second quarter decreased by 1.27 million tons and 870,000 tons respectively compared to the first quarter. The sharp rise in iron ore prices also affected the losses.

POSCO is cautiously forecasting an improvement in third-quarter performance. POSCO plans to overcome the COVID-19 crisis through its energy and electric vehicle material businesses. The strategy focuses on maintaining cash flow and expanding new businesses to overcome the current situation. It is putting all efforts into cost reduction by cutting unnecessary expenses by up to 70% and improving equipment productivity. Currently, steel mill workers are on paid leave, and all group companies are using annual leave every other Friday.

POSCO plans to actively respond to partially recovering demand and push for product price increases. A POSCO official predicted, "The operating rates of factories in China, Vietnam, and Thailand will rise, recovering to 80% of the first quarter level." He added, "We have requested price increases from customers and are currently in discussions."

This year's sales forecast has been lowered from the initial 57 trillion KRW to 55 trillion KRW. POSCO also officially announced plans to shut down the No. 1 blast furnace at the Pohang Steelworks, which has been in operation since 1973, next year.

This content was produced with the assistance of AI translation services.