Divergent Second Half Performance Reports in Steel Industry Amid 'Energy and Raw Material Crisis'

Most Major Steel Companies See Earnings Halved
SeAH Steel Shows Turnaround Amid Energy Crisis

In the midst of the energy and raw material crisis, the performance of the steel industry, a representative downstream sector, showed mixed results. While most steel companies experienced a clear decline in earnings, only SeAH Steel Holdings showed a turnaround with increased sales of steel pipes used in new oil and natural gas facilities.

According to the steel industry on the 20th, major domestic steelmakers such as POSCO, Hyundai Steel, and Dongkuk Steel reported operating profits in the third quarter of this year that fell by more than 50% compared to the same period last year. The steel sector is a typical downstream industry hit hard by the complex crisis of the energy and raw material crisis combined with high exchange rates and high interest rates. Global automobile production and consumption have sharply declined, and new ship orders have also decreased, leading to a significant drop in steel demand. This is why domestic steelmakers are experiencing a significant deterioration in performance after last year's record-breaking results.

The prevailing view is that the recovery point is still far off. Concerns about a global economic recession persist, and steel prices are expected to remain weak due to reduced steel demand caused by the sluggish Chinese real estate market and tightening monetary policies. Lee Taehwan, a researcher at Daishin Securities, explained, "In October, the World Steel Association forecasted global steel demand for next year to be 1.8148 billion tons, a 1% increase from the previous year, but this was a downward revision of 66.7 million tons from the previous forecast."

POSCO recorded an operating profit of 397 billion KRW in the third quarter on a separate basis, shrinking 82.7% from 2.296 trillion KRW last year. The suspension of blast furnace operations at the Pohang Steelworks due to Typhoon Hinnamnor had a significant impact, compounded by the global demand decline. POSCO stated, "In the previous quarter, operating profit was 1.322 trillion KRW, with a sales price decline of 463 billion KRW, raw material cost increase of 54 billion KRW, production and sales volume decrease of 222 billion KRW, and typhoon-related flood damage of 186 billion KRW reflected in this quarter."

Hyundai Steel's operating profit in the third quarter also fell 54.9% year-on-year to 373 billion KRW. This was a direct hit from the raw material crisis. Although prices for iron ore and coking coal rose, it was difficult to reflect these in product prices due to decreased demand. Hyundai Steel explained, "We sold products produced with high-cost raw materials in a market where prices declined in the second half, resulting in reduced profits."

Dongkuk Steel's operating profit also dropped 62% from 299.1 billion KRW last year to 113 billion KRW. The company stated, "In the third quarter, volatility in domestic and international raw material prices increased, leading to an overall weakness in product prices," and added, "The long product segment, which accounts for 50% of Dongkuk Steel's sales, also experienced a seasonal off-season in the third quarter, resulting in decreased sales volume." The consensus estimate of 161.4 billion KRW was missed by 7.96%. Due to worsening market conditions and weak demand in the home appliance and building materials sectors, sales volume (1.407 million tons) fell short of market expectations.

On the other hand, SeAH Steel Holdings recorded strong performance amid the energy crisis. This was due to increased new demand for steel pipes used in oil and gas facilities. The energy and raw material crisis triggered by the Russia-Ukraine war, which caused instability in oil and natural gas supply, turned into an opportunity. Operating profit more than doubled compared to the same period last year, driven by a surge in steel pipe sales for new oil and gas pipelines. SeAH Steel Holdings posted consolidated sales of 1.0043 trillion KRW and operating profit of 173 billion KRW in the third quarter. Sales increased by 38.8% and operating profit by 101.2% year-on-year. The company benefited significantly from increased demand for energy-related steel pipes due to the boom in the North American oil and gas industry. SeAH Steel Holdings analyzed, "The supply of energy-related steel pipes in North America is insufficient compared to demand," adding, "Operating profit increased due to price hikes and expanded supply."

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