POSCO, 'Jecheol' Arrives Beyond the Winter of COVID-19

Steel Sector Recovery... Signs of Performance Rebound After First Ever Deficit in 2Q

[Asia Economy Reporter Minwoo Lee] POSCO, which experienced a harsh period including recording its first-ever operating loss due to the impact of the novel coronavirus infection (COVID-19), is expected to recover its performance in the second half of the year.

According to financial information firm FnGuide on the 22nd, POSCO's third-quarter consolidated earnings consensus (forecast) is sales of 14.2311 trillion KRW and operating profit of 429.3 billion KRW. Some predict that operating profit will exceed 500 billion KRW. Although still insufficient compared to the same period last year, it is more than a 150% increase compared to the previous quarter. It is analyzed that a clear recovery trend will begin despite being hit directly by COVID-19.

In the second quarter, POSCO recorded consolidated sales of 3.7 trillion KRW and operating profit of 167.7 billion KRW. This represents a decline of 15.9% and 84.3%, respectively, compared to the same period last year. On a separate basis, it recorded an operating loss of 108.5 billion KRW, marking its first-ever deficit. This was due to overlapping adverse factors such as a sharp drop in global steel demand and falling steel product prices amid the spread of COVID-19, while raw material prices like iron ore rose.

The mood is expected to reverse from the third quarter. The steel sector, which accounts for about 70% of consolidated operating profit, is expected to enter a full-fledged recovery phase. Korea Investment & Securities forecast POSCO's third-quarter steel product sales volume at 8.6 million tons, a 10.8% increase from the previous quarter. Ha-neul Jung, a researcher at Korea Investment & Securities, explained, "The effect of fixed cost reduction due to the rebound in operating rates will begin to appear," adding, "Profitability is expected to expand as sales price increases coincide." Additionally, supported by normalization of product lines such as increased sales of automotive steel sheets, it is analyzed that POSCO will achieve an operating profit of 222.1 billion KRW on a separate basis, returning to profitability.

The stock price, which had been moving independently from the KOSPI index, is also gradually recovering. Since mid-March, when the stock market plunged due to COVID-19, the KOSPI index has generally trended upward, rising about 65% from its low point, whereas POSCO's stock price rose only about 43% during the same period. Even when the KOSPI steadily rose and surpassed 2400 on the 10th of last month, POSCO's stock price, which was in the 200,000 KRW range, actually fell to the 180,000 KRW range. However, it has continued its upward trend over the past week and recovered to 197,000 KRW as of 11:30 AM on the day.

As steel product sales volume centered on automobiles is expected to continue increasing in the second half, performance is forecast to maintain its recovery trend for the time being. Researcher Jung analyzed, "As demand in downstream industries, which worsened due to COVID-19, recovers and fixed costs are reduced due to increased operating rates, the strength of performance recovery in the second half can be enhanced."