POSCO Q1 Earnings 'Cloudy'... Growing Concerns Over Steel Demand Slowdown

[Asia Economy Reporter Hwang Yoon-joo] POSCO's performance in the first quarter of this year is expected to fall short of market expectations. Analysts predict that if demand decreases in Europe and North America, the largest consumption regions, due to the spread of the novel coronavirus infection (COVID-19), the performance in the second quarter will also decline.

According to securities information provider FnGuide, market experts have lowered POSCO's first-quarter operating profit forecast from the initial 409.7 billion KRW.

This is because sales volume is expected to be weaker than last year due to blast furnace maintenance and rationalization of the hot rolling mill in mid-February. Additionally, the sharp rise in iron ore import prices in the first quarter of this year is expected to limit the effect of reducing raw material input costs.

In response, POSCO recently held an emergency meeting at the Management Strategy Office and conducted a briefing on the current management status. Multiple POSCO officials stated, "At the Management Strategy Office briefing, it was mentioned that operating profit sharply declined in January and February this year, barely covering financial interest expenses," adding, "The operating situation is expected to become more difficult after March."

According to the Financial Supervisory Service's electronic disclosure, POSCO's interest expenses last year were about 870 billion KRW, averaging 72 billion KRW per month. It is known that about 50 billion KRW per month was spent on financial interest until February this year. Accordingly, POSCO plans to further expand cost reductions and use the expansion of WTP (World Top Premium) product sales as a breakthrough.

However, it is uncertain whether such measures can defend against profitability deterioration. Recently, as COVID-19 cases have rapidly increased in Europe and the United States, concerns about steel demand slowdown in these two regions have been raised.

Park Sung-bong, a researcher at Hana Financial Investment, pointed out, "In the case of automobiles, most factories in Europe and North America have already closed, increasing the possibility of disruptions in steel exports to these regions," adding, "It is a time to confirm the slowdown of the global spread of COVID-19."

Lee Jong-hyung, a researcher at Kiwoom Securities, analyzed, "Due to the spread of COVID-19, domestic and international steel demand contraction is expected to intensify from the second quarter," and "Although poor performance of global steelmakers including POSCO is inevitable until the second quarter, a gradual recovery in performance is expected from the third quarter."