[Click eStock] "Hyundai Steel, 2Q Operating Performance Improvement... 3Q Profitability Expected to Deteriorate"

[Asia Economy Reporter Lee Jung-yoon] Hana Securities maintained a buy rating and a target price of 60,000 KRW for Hyundai Steel on the 27th, stating that although profitability is expected to deteriorate in the third quarter of this year, the spread (the difference between product price and raw material cost) is expected to widen in the fourth quarter due to a decline in raw material input costs.

Hyundai Steel's sales in the second quarter of this year amounted to 7.4 trillion KRW, up 31.3% year-on-year, and operating profit increased by 50.8% to 822.1 billion KRW. The operating profit slightly exceeded the market consensus estimate of 814.2 billion KRW, achieving a solid performance.

Due to the Cargo Solidarity strike, shipment delays and sales volume fell short of expectations, recording 4.87 million tons. However, aggressive price increases expanded the spread for blast furnace and electric furnace steel to 20,000 KRW and 50,000 KRW per ton, respectively. The profitability of overseas SSC (Steel Service Center) deteriorated compared to the first quarter due to decreased profits at the U.S. subsidiary and unrealized losses.

Profitability is expected to worsen in the third quarter due to spread contraction and rising costs. Researcher Park Sung-bong of Hana Securities explained, "Although the import price of blast furnace raw materials has declined since May, high-priced raw materials will continue to be used until the third quarter, causing Hyundai Steel's blast furnace raw material input cost to rise by 35,000 KRW per ton. On the other hand, from July, the average selling price (ASP) is expected to fall by 45,000 KRW per ton due to price reductions in major products including thick plates and hot-rolled distribution products, leading to a contraction in the spread."

He added, "In the case of long products, the spread is expected to shrink by 15,000 KRW per ton due to an ASP decline exceeding the raw material price drop. Additionally, a fuel cost burden of 45 billion KRW is expected due to the sharp rise in LNG prices. Considering this, Hyundai Steel's operating profit for the third quarter is forecasted to decrease by 32.1% year-on-year to 561.3 billion KRW."

However, Researcher Park noted, "Although the third quarter's profitability outlook following the strong second quarter results is burdensome, the spread is expected to widen in the fourth quarter due to a full-scale decline in raw material input costs. Depending on the outcome of price negotiations for automotive steel sheets with Hyundai Motor Group, the extent of spread expansion could be even greater," he added.

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