Steel Stocks Leading with Earnings as an Alternative in a Bear Market

[Asia Economy Reporter Song Hwajeong] As the KOSPI ended last month on a weak note, breaking its nine-month consecutive rise, steel stocks gained momentum and emerged as an alternative in the bearish market.

According to the Korea Exchange on the 2nd, the KOSPI fell by 2.86% last month, and most KOSPI sector indices recorded declines. The only sectors that showed gains were steel & metals and non-metallic minerals. Steel & metals rose 6.07% last month, while non-metallic minerals increased by 2.11%.

The strength of steel stocks is attributed to improved second-quarter earnings and favorable industry conditions. POSCO posted a consolidated operating profit of 2.201 trillion KRW in Q2, a 1213% increase compared to the same period last year, achieving its highest performance since 2006. Hyundai Steel also recorded an operating profit of 545.3 billion KRW in Q2, up 3795%, marking its best quarterly performance since its founding. SeAH Besteel’s Q2 operating profit rose 393.6% year-on-year to 93.9 billion KRW, achieving its highest results since 2015.

China’s government tightening regulations is also seen as positive. Steel stocks, which showed strength early in the year, experienced a correction in May due to China’s intervention in raw material prices but have recently regained optimism due to China’s production cut policies. According to Meritz Securities, China’s production cut policies in the second half of the year include directives from local governments to steel companies to adjust production plans to meet annual reduction targets, the central government’s announcement of a “Mid-to-Long-Term Roadmap for the Steel Industry to Achieve Carbon Neutrality,” and additional increases in export tariffs on certain items. Among these, local production cut directives have already begun implementation, the roadmap is expected to be announced in Q3, and export tariff hikes require further confirmation. Moon Kyungwon, a researcher at Meritz Securities, explained, “Korean steel companies can significantly benefit from price increases caused by China’s production cut policies,” adding, “In the short term, the positive effects of the production cuts outweigh demand concerns, making buying in Q3 a valid strategy.”

However, some opinions suggest that a sustained upward trend in steel stocks requires confidence in increased market demand. Lee Euntak, a researcher at KB Securities, said, “The strength of steel stocks driven by earnings recovery is viewed positively only in the short term,” adding, “For stock prices to rise in a sustained manner, there must be a belief in structurally increasing market demand and companies expanding their production capacity accordingly.”