[Click eStock] "POSCO, Cost Burden Increases as China's Peak Season Effect Diminishes"

[Asia Economy Reporter Kwon Jae-hee] Yuanta Securities maintained a 'Buy' rating on POSCO Holdings on the 28th, setting a target price of 460,000 KRW.

Yuanta Securities forecast POSCO's standalone operating profit for Q1 this year to be around 1.1 trillion KRW. This is due to a production decrease caused by the refurbishment of the No. 4 blast furnace in Gwangyang, resulting in sales volume expected to be 8.42 million tons, which would increase the fixed cost burden per unit compared to the previous quarter. Additionally, although domestic steel distribution prices began rising from mid-February, POSCO raised its selling prices starting in March, so the carbon steel selling price in Q1 is expected to fall by 60,000 KRW per ton compared to the previous quarter. However, raw material input costs are projected to increase by about 40,000 KRW per ton compared to the previous quarter. The overseas steel and trading divisions are expected to see a slight decrease in operating profit compared to the previous quarter, while the energy division is expected to increase.

The steel demand outlook is negative due to the diminished effect of the Chinese peak season caused by COVID-19. According to the National Health Commission of China, the number of new COVID-19 cases (excluding imported cases) surged in March. From the 12th to the 26th, there were over 1,000 new confirmed cases daily for 15 consecutive days, and the number of asymptomatic cases has also been continuously increasing, leading major cities to implement lockdowns and other measures. This appears to be negatively impacting steel demand as well.

Researcher Lee Hyun-soo of Yuanta Securities stated, "The operating rate of steel companies in March is lower than the same period last year but higher compared to January and February this year," adding, "Inventory burden is not high, but if the COVID-19 situation does not improve in April and May, the seasonal peak effect is also expected to diminish."

However, the impact of the Russia-Ukraine war on Chinese steel prices is expected to be limited. According to the World Steel Association, Russia and Ukraine account for 3.9% and 1.1% respectively of global crude steel production.

Researcher Lee analyzed, "Concerns over steel supply disruptions due to the Russia-Ukraine war caused steel prices in Europe and the US to surge after March, but China, which can meet steel consumption with domestic production, has relatively weak steel prices. Furthermore, the Chinese government continues to express concerns about the rise in the Producer Price Index, making price increases difficult. Therefore, product price increases can be expected only after raw material prices rise."

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