[Into the Stocks] Posco Chemical Drawing the Big Picture, Cathode Material Growth Story Remains Valid

Prospects for Group-wide Focused Support
Expansion into the US and Europe Following China
Anode Materials Also Backing Growth Centered on Cathode Materials

The joint venture operated by POSCO Group and Huayou Cobalt in Tongxiang City, China (Provided by POSCO Chemical)

[Asia Economy Reporter Minwoo Lee] POSCO Chemical is expected to continue its strong growth with support at the group level. In particular, growth centered on cathode materials is anticipated to be effective. There is even hope that it could surpass Ecopro BM to become the number one domestic cathode material company.

According to the industry on the 27th, POSCO Chemical has chosen China as its first overseas base for the secondary battery materials business. POSCO Group and Huayou Cobalt have decided to invest a total of 281 billion KRW in Zhejiang Pohwa and Zhejiang Huapo, joint ventures (JVs) producing cathode materials and precursors in China. With this investment, the current annual production capacity of 5,000 tons each will increase to 35,000 tons each. This realization follows the announcement in the second quarter that the focus of long-term investments would shift overseas.

Jung Yongjin, senior researcher at Shinhan Financial Investment, explained, "Investment was made first in China because major customers have production bases there and there are many growing new local cell companies. It is expected that mid- to long-term investment plans will be realized through additional overseas expansion in the future."

Strong Performance in 2Q Centered on Cathode Materials, Record-Breaking Results Expected in 3Q

In the second quarter of this year, POSCO Chemical recorded consolidated sales of 480 billion KRW and operating profit of 35.6 billion KRW, representing increases of 41.1% and 768.3% respectively compared to the same period last year. The operating profit also exceeded market consensus by 2.92%. Cathode materials achieved a quarterly record sales amount of 167.7 billion KRW due to increased sales volume and improved selling prices driven by rising raw material costs. Profitability improved as cost reduction efforts were added with the full-scale entry into mass production. On the other hand, anode materials sales fell to 42.8 billion KRW, down 17.5% from the previous quarter, due to decreased sales volume caused by production disruptions at electric vehicle customers resulting from a shortage of automotive semiconductors.

In the third quarter, record quarterly results are expected, driven by the boom in cathode materials. According to financial information analysis firm FnGuide, the consensus for the third quarter is sales of 519.3 billion KRW and operating profit of 37.2 billion KRW, expected to increase by 33.6% and 91.6% respectively compared to the same period last year. Jeon Changhyun, researcher at IBK Investment & Securities, forecasted, "Cathode materials will see improvements in both sales and profitability due to the global expansion of electric vehicle sales and reduced fixed costs from a stabilized mass production system. The anode materials segment, which was sluggish last quarter, is also expected to improve as the supply of automotive semiconductors recovers from the second quarter low."

Continued Growth Centered on Cathode Materials in the Second Half

The proportion of secondary battery materials sales, including cathode and anode materials, in POSCO Chemical's total sales is expected to sharply increase from 35% last year to 48% this year and 64% next year. Aggressive capacity expansions are also anticipated alongside announcements of overseas investment plans in the U.S., Europe, and other regions in the second half of the year. Cathode material production capacity is projected to increase from 40,000 tons this year to 270,000 tons by 2025. Anode materials are also expected to expand from 70,000 tons this year to 170,000 tons in 2025.

This outlook is based on the expectation that POSCO Group's grand plan to make secondary batteries a future growth engine will be realized. First, vertical integration is expected in which POSCO Chemical's anode materials division will receive raw materials through POSCO International, an affiliate within the group. POSCO Chemical has already set plans to massively expand anode material production to 172,000 tons by 2025 and 260,000 tons by 2030. The group's affiliate capabilities are being concentrated on the high growth of the energy business division.

As sales volume increases, vertical integration and mass production are also reducing costs, sustaining profitability improvements. Kim Yongho, researcher at Hanyang Securities, stated, "With production expansion plans announced through 2030, POSCO Chemical will continue to strengthen profitability by meeting growing demand. From a long-term perspective, according to the 2025 production capacity roadmap, POSCO Chemical's energy materials division sales could potentially surpass Ecopro BM, currently the number one domestic cathode material company."