[Into the Stock] Posco, Returning to 400,000 Won After 9 Years... But Facing the Obstacle of China

Closed at 407,000 won on the 10th but... Four Consecutive Days of Decline from the 12th
Steel Market Shaken by China's Price Control Attempts... Long-Term Impact Uncertain

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] POSCO, which had risen to the 400,000 KRW range for the first time in nine years, has fallen back to the 300,000 KRW range due to volatility in the steel market originating from China. However, the securities industry expects greater growth potential.

According to the Korea Exchange, as of the 17th, POSCO closed at 367,000 KRW, down 3.42% (13,000 KRW) from the previous trading day. It has been declining for four consecutive trading days since the 12th, dropping 10.38%. During the same period, the KOSPI also fell but by a relatively smaller margin of 2.33%.

Excellent Q1 Performance... Operating Profit Up 120.1% Year-on-Year

POSCO's Q1 performance this year was excellent. Sales reached 16.0687 trillion KRW, up 10.5% compared to the same period last year. Operating profit rose 120.1% to 1.5524 trillion KRW, and net profit attributable to controlling shareholders increased 159.2% to 1.0248 trillion KRW. This is the first time operating profit has returned to the trillion KRW level since Q3 2019. Byun Jong-man, a researcher at NH Investment & Securities, explained, “Both operating profit and net profit attributable to controlling shareholders exceeded market consensus by 20.6% and 25.1%, respectively,” adding, “The simultaneous strength in iron ore and steel prices led to POSCO’s strong performance.”

In fact, iron ore and steel prices have risen sharply this year. On the 23rd of last month, the price of iron ore was $183.7 per ton (approximately 208,866 KRW), up 15.5% from a month earlier. In April last year, it did not even exceed $100. The domestic hot-rolled coil distribution price in China also rose 11.3% month-on-month to 5,764 yuan per ton (approximately 1,017,461 KRW) on the 25th of last month. Consequently, the domestic hot-rolled coil price also rose to 1.03 million KRW per ton.

As a result, POSCO’s stock price was on a continuous upward trend. Especially from the 3rd, it rose for six consecutive trading days, showing a 12.50% increase. Notably, it closed at 407,000 KRW on the 10th, entering the 400,000 KRW range. This was the first time POSCO’s closing price surpassed 400,000 KRW since March 8, 2012.

Steel Futures Market 'Shaken' by China’s Steel Price Control Moves

[Image source=Yonhap News]

However, POSCO’s stock price weakened after encountering obstacles from China. The Chinese government is showing moves to control the rapidly rising steel prices.

On the 12th, the Chinese State Council, chaired by Premier Li Keqiang, announced at an executive meeting that “we must respond to situations where the sharp rise in raw material prices affects other parts of the economy.” This meeting was held due to inflation concerns. China’s Producer Price Index (PPI) for April rose 6.8% year-on-year, marking the highest level in three and a half years. Subsequently, on the 14th, the local government of Tangshan City in China summoned steel industry officials for a “Weitan.” Weitan is a kind of disciplinary meeting where government agencies call supervised parties to deliver instructions. Tangshan City warned it would severely punish speculative and hoarding activities and price manipulation in steel. Furthermore, the Dalian and Shanghai Commodity Exchanges announced regulatory measures on iron ore and steel futures, respectively. Iron ore futures saw increases in margin requirements and daily price limits, while trading fees for October contracts of rebar and hot-rolled coils were raised by 0.01%.

Concerns over stricter Chinese government regulations shook the steel futures market. The iron ore futures price on the Dalian Commodity Exchange fell from $233.10 on the 12th to $209.35 on the 14th. Hot-rolled steel and coking coal also dropped by 6% and 6.5%, respectively.

Securities Industry: "Steel Prices Won't Fall Easily"... Chinese Futures Market Regulations May Have Limited Impact

The securities industry expects POSCO to rise again based on its performance, as steel prices, which underpin POSCO’s results, are unlikely to fall easily.

Steel prices still have greater influence in North America and Europe. According to investment firm Barron's, despite ongoing tariff reduction negotiations, U.S. steel stocks such as U.S. Steel, Cleveland-Cliffs, and Dynamics showed strength. This indicates that steel price increases and demand growth affect stock prices more than tariffs.

Park Sung-bong, a researcher at Hana Financial Investment, explained, “The current steel price rise is driven not only by China but also by insufficient steel supply in various countries, pushing domestic prices up,” adding, “Especially, steel domestic prices in the U.S. and Europe have risen to levels much higher than in Asia due to supply shortages.”

There is also a view that China’s futures market regulations may have less impact than expected. Researcher Park said, “In 2016, steel distribution prices weakened after futures market regulations,” but added, “However, considering that prices continued to rise even after regulations in 2017, it is difficult to conclude that regulations necessarily lead to price declines.”