[Click eStock] "Invest in POSCO during economic recovery and rising interest rates"

[Asia Economy Reporter Ji Yeon-jin] NH Investment & Securities maintained the target price of POSCO at 350,000 KRW, stating that the company’s quarterly operating profit in the first half of the year is expected to recover to around 1 trillion KRW due to economic recovery and rising steel prices.

POSCO’s consolidated sales this year are projected to increase by 7.9% year-on-year to 62.3528 trillion KRW, with operating profit growing 65.2% to 3.9694 trillion KRW. Net income attributable to controlling shareholders is expected to be 2.461 trillion KRW (+53.6%). Supported by economic recovery and rising steel prices, quarterly operating profit in the first half is expected to recover to around 1 trillion KRW.

Byun Jong-man, an analyst at NH Investment & Securities, said, “Rising steel prices and expectations for economic recovery, along with interest rates and inflation, are expected to drive stock price increases,” adding, “China’s mention of steel production cuts is positive for investor sentiment regardless of whether it is realized.”

The recent focus in the stock market is on rising interest rates. On the 25th of last month, the yield on the 10-year U.S. Treasury bond rose to 1.52%, acting as a factor for global stock market adjustments. However, POSCO’s stock price historically trended upward during periods of rising interest rates. In particular, right after the U.S. Federal Reserve (Fed) began raising the benchmark interest rate in December 2015, POSCO’s stock price bottomed out in January 2016 and rose until January 2018.

Generally, rising interest rates signal an improving economy, so it is natural that the stock prices of steel companies, which are economically sensitive value stocks, increased. Analyst Byun said, “China’s government policies related to steel production cuts are positive for investor sentiment, but in the short term, Tangshan City implemented stricter production cuts than the standard from March 2 to 5 ahead of the Two Sessions.” He added, “During the 14th Five-Year Plan period, China’s Ministry of Industry and Information Technology mentioned production cuts for industries with high carbon dioxide emissions and energy inefficiency, but did not specify exact timing or figures, making it difficult to gauge the actual impact.”