[Click eStock] "POSCO, Base Burden Next Year Exists but... Excessive Concerns Should Be Avoided"

Average Selling Price of Carbon Steel Expected to Rise
Yuanta Securities Maintains POSCO Target Price at 530,000 KRW

[Asia Economy Reporter Gong Byung-sun] Thanks to the rise in the average selling price (ASP) of carbon steel, POSCO's performance in the third quarter of this year is expected to be strong. Although there is a base effect burden next year due to this year's performance, some caution against excessive concern has also been raised.

On the 7th, Yuanta Securities estimated POSCO's standalone operating profit for the third quarter to be 2.114 trillion KRW, a 31% increase compared to the previous quarter. The consolidated operating profit for the third quarter is expected to be 2.7099 trillion KRW, a 23% increase from the previous quarter. This exceeds the market consensus of 2.197 trillion KRW by 23.3%.

(Provided by Yuanta Securities)

The rise in carbon steel ASP is interpreted as having a positive impact on standalone operating profit. Although the input costs of major raw materials such as iron ore and coking coal have increased, the rise in carbon steel ASP is expected to be greater. This also explains why operating profit increased despite a 1.2% decrease in carbon steel sales volume in the third quarter compared to the previous quarter. The consolidated operating profit also appears to grow due to the strong performance of the overseas steel division.

Hyunsoo Lee, a researcher at Yuanta Securities, explained, “Although domestic steel product prices in China have been adjusted since mid-May, there is room for further increase because they have not reached the product selling prices of domestic steel companies in the first half of this year,” adding, “In the second half of the year, the price negotiation for domestic shipbuilding steel plates was concluded faster than expected, resulting in an overall increase in selling prices.”

Next year's performance is expected to feel the base effect burden from this year. This is because this year's operating profit is expected to grow significantly compared to the previous year and the figures are also large. Yuanta Securities forecast POSCO's operating profit for this year at 8.8182 trillion KRW.

However, Yuanta Securities believes that despite the large base effect burden, there is no need for excessive concern considering the domestic and international steel market conditions. Researcher Lee said, “The period from the first to the third quarter this year was influenced by the lagging effect, and in the fourth quarter, the lagging effect is expected to disappear and one-time costs to be reflected,” but added, “If there are no major variables after the lagging effect disappears, next year's operating profit will increase compared to this year.” The lagging effect refers to the phenomenon where, in the spot market, when product prices and raw material prices rise simultaneously, a company's product selling price is reflected earlier than the raw material input price.

Accordingly, Yuanta Securities maintained its investment opinion of ‘Buy’ on POSCO and a target price of 530,000 KRW. The closing price on the previous day was 349,000 KRW.

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