[Asia Economy Reporter Hwang Yoon-joo] The performance of major domestic steelmakers in the second quarter of this year showed mixed results due to the COVID-19 pandemic. While blast furnace steelmakers, who mainly produce steel used in automobiles and home appliances, experienced sluggish performance, electric arc furnace (EAF) steelmakers, specializing in rebar and H-beams, succeeded in defending their earnings.
According to securities information provider FnGuide on the 11th, Dongkuk Steel’s consensus operating profit (separate basis) for the second quarter is expected to be 84 billion KRW, a 20% increase compared to the same period last year. Sales are projected to decrease by 16.1% to 1.1255 trillion KRW, while net profit is estimated to rise by 50% to 30 billion KRW. Dongkuk Steel is the last among major steelmakers to announce its earnings, scheduled for the 14th.
The strong performance of Dongkuk Steel appears to be linked to the construction industry, its main downstream sector. Owning electric arc furnaces, Dongkuk Steel mainly produces long products used as construction materials. The government’s economic stimulus measures have boosted social overhead capital (SOC) projects, improving the performance of the EAF segment.
Hyundai Motor Securities analyst Park Hyun-wook said, "Profitability in Dongkuk Steel’s long products segment is expected to improve. Although domestic demand for rebar is decreasing monthly, the focus on profitability suggests spreads will remain high. Sales of H-beams increased by 3% compared to the same period last year (April and May basis) and by 6% compared to the first quarter," he analyzed.
On the other hand, blast furnace steelmakers, which mainly produce hot-rolled steel used in automobiles, shipbuilding, and home appliances, suffered poor results due to the direct impact of COVID-19. Posco, which was the first to disclose second-quarter results, posted a quarterly operating loss of 108.5 billion KRW on a separate basis for the first time, turning to a deficit. Hyundai Steel barely avoided a loss with an operating profit of 9.2 billion KRW on a separate basis, as the EAF segment’s performance offset the slump in the blast furnace segment. SeAH Besteel, specializing in special steel products for automobiles, recorded a 30.6% decrease in operating profit to 7 billion KRW in the second quarter compared to the same period last year.
An industry insider said, "The steel industry’s earnings impact was revealed in the second quarter results as the global automobile industry experienced shutdowns during the peak of the COVID-19 crisis in the first quarter. Earnings are expected to improve from the third quarter as automobile factory operating rates normalize."
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