From China to the US and Europe... POSCO's 1Q Operating Profit Halved Due to COVID-19 Recession

1Q Operating Profit Expected at 354.4 Billion KRW... Down 57.4% YoY
China Calms Down, but Exports Plummet Due to US and European Steel Plant Closures

On the 18th, employees are seen walking at the POSCO Center on Teheran-ro, Gangnam-gu, Seoul, where POSCO, the largest steel company in Korea, held an emergency temporary board meeting. Although the agenda of this board meeting was not disclosed, there are claims that it is related to the whereabouts of Chairman Kwon Oh-joon. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Minwoo Lee] Steelmaker POSCO is experiencing a downturn due to the recession caused by the novel coronavirus infection (COVID-19). This is because the closure of overseas steel plants and a sharp decline in demand are also occurring in the United States and Europe.

On the 29th, Hana Financial Investment forecasted that POSCO would record sales of 6.9 trillion KRW and an operating profit of 354.4 billion KRW on a separate basis in the first quarter of this year. Compared to the first quarter of last year, sales decreased by 12.1%, and operating profit dropped by 57.4%.

This was analyzed to be due to poor performance in overseas markets from China to the United States and Europe. Sales volume in the first quarter was 8.45 million tons, down 9.1% year-on-year. This was due to the impact of COVID-19 as well as overlapping events such as blast furnace maintenance and rationalization of the hot rolling mill since mid-last month. Exports to China faced some disruptions. Although exports to other regions were substituted, it was insufficient to reach the market consensus operating profit forecast of 439 billion KRW. Although import prices have decreased since last month, the sharp rise in spot prices in the first quarter limited the effect of raw material input cost reduction.

While the number of new COVID-19 cases in China has sharply decreased and steel-related industries that had suspended operations are resuming production, negative factors have emerged in the United States and Europe. As COVID-19 rapidly spreads, concerns about a slowdown in steel demand in these regions have been raised. In the automotive sector, most factories in Europe and North America have already closed, increasing the possibility of disruptions in steel exports.

Nevertheless, Hana Financial Investment maintained a 'Buy' investment rating and a target price of 270,000 KRW. The previous trading day's closing price was 155,500 KRW. Researcher Seongbong Park of Hana Financial Investment explained, "In the short term, export disruptions due to the spread of COVID-19 are a concern, but considering the price-to-book ratio (PBR) is around 0.28 times, such negative factors have already been reflected in the stock price," adding, "This level is even lower than in 2015 when the global steel industry experienced a structural oversupply at its peak due to China, and since COVID-19 is not a structural problem, the current PBR is excessively undervalued."