Steel Industry "Hope for Escaping Deficit Appears"

Choi Jung-woo, Chairman of POSCO, and POSCO Pohang Steelworks

POSCO, Factory Operating Rate Returns to Normal

Market Expectations Rise for Q3 Earnings

[Asia Economy Reporter Park Soyeon] The steel industry, which has been going through a 'coronavirus lean season' due to decreased demand from downstream industries such as automobiles and shipbuilding, is expected to gradually escape the deficit trap starting from the third quarter of this year. Since its founding in 1968, POSCO's factory operating rate, which had undergone artificial production cuts for the third time after the IMF financial crisis and the global financial crisis, has returned to normal levels. Hyundai Steel, which is restructuring its non-core businesses, is expected to recover from the fourth quarter.

According to the steel industry on the 7th, POSCO recently raised its factory operating rate to the usual level of 90%. POSCO had lowered its factory operating rate to around 83.3% in the first half of this year through artificial production cuts. A company official explained, "The rate hit bottom in the second quarter and showed signs of recovery in the third quarter," adding, "The factory operating rate has now normally recovered to about 90%."

Q3 earnings are also expected to exceed market expectations. Steel product sales recovered from 7.76 million tons in Q2 to about 8.7 million tons in Q3, an increase of approximately 1 million tons. Additionally, the decline in carbon steel costs expanded the margin to around 20,000 KRW per ton, which is also analyzed to have contributed to the improvement in earnings. The securities consensus for POSCO's Q3 operating profit is about 467.1 billion KRW. This is a significant recovery compared to the previous quarter's operating loss of 167.7 billion KRW on a consolidated basis and 104.9 billion KRW on a separate basis. Kim Yoonsang, a researcher at Hi Investment & Securities, forecasted, "With the stabilization of iron ore prices expected in Q4, concerns over rapid cost increases will be alleviated, and the earnings improvement trend will continue."

Hyundai Steel Accelerates Non-Core Business Restructuring This Year
Full-Scale Rebound Expected from Q4

Hyundai Steel is expected to rebound significantly from the fourth quarter. Although securities consensus predicted an operating profit of 28.6 billion KRW in Q3, there are concerns in the industry that it may return to a loss in Q3. This is largely due to the decline in selling prices despite the rise in steel scrap prices in the long products segment. Although sales volume of cold-rolled steel sheets increased, the inability to raise prices is also considered a negative factor for profitability. However, the industry expects Hyundai Steel to turn to a recovery trend from Q4, as it has been accelerating restructuring of unprofitable businesses this year. Hyundai Steel spun off its forging division in April and decided in June to suspend operations and sell the electric furnace thin steel sheet rolling mill at the Dangjin Steelworks. It is currently working on reorganizing overseas subsidiaries, including integrating its China subsidiary, and is reportedly considering selling its pipe business division.

A Hyundai Steel official said, "We are working to secure liquidity by selling non-core businesses and strengthening our fundamentals," adding, "We cautiously expect a recovery trend starting from the fourth quarter."

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