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Korean steel companies' earnings expected to dip in Q1

By Shim Woo-hyun

Published : April 14, 2024 - 16:58

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Posco's blast furnace in Pohang, North Gyeongsang Province (Posco) Posco's blast furnace in Pohang, North Gyeongsang Province (Posco)

Earnings of Korean steel companies in the first quarter are expected to fall due to increased prices of raw materials and the sluggish construction market, according to reports from local securities companies, Sunday.

Analysts had a bleak outlook for Posco, the country's steel giant, expecting that both sales and operating profit will drop from the previous year, when its sales and operating profit came to 15.5 trillion won ($11.2 billion) and 338 billion won, respectively.

Due to the decreases in earnings of its main business, Posco Holdings’ sales and operating profit would also decrease to 18.9 trillion won and 662 billion won, down 2.4 percent and 6.1 percent on-year, respectively, according to Eugene Investment & Securities’ report.

eBest Investment & Securities also anticipated Posco Holdings’ sales in the first quarter to reach 19.3 trillion won. The securities firm, however, said the Holdings company's operating profit would come to 517.5 billion won, 25 percent lower than the consensus of 695 billion won.

“Despite recent increases in prices of steel products, (Posco’s) earnings are expected to decrease in the first quarter as prices of coking coal and iron ore have increased since the end of 2023,” said an analyst at Eugene Investment & Securities.

The ongoing four-month maintenance work on the No. 4 blast furnace in Pohang and increased labor costs would also weigh on the company’s Q1 earnings, eBest Investment & Securities’ report also noted in its separate report.

“Posco’s operating profit in the first quarter is estimated at 243.7 billion won, slightly down from the previous year, 338 billion won. The company’s sales of steel products will also decrease to 8.18 million (metric) tons, down 1.8 percent on-year, due to the maintenance work of No. 4 blast furnace,” an analyst at eBest Investment & Securities said.

Hyundai Steel, South Korea's second-largest steelmaker, is also experiencing similar difficulties.

According to the local reports, Hyundai Steel’s operating profit in the first quarter is expected to drop by around 66 percent to 114 billion won, from 334 billion won last year. Its sales would come to some 6.3 trillion won, down 1.3 percent on-year.

Their earnings could rebound in the second quarter, mainly on lower prices of raw materials, according to local reports.

“In the long run, the steel industry will continue to face difficulties due to low demand. But, in the second quarter this year, Korean steel companies may slightly rebound, supported by the stabilized prices of raw materials and steel products,” Korea Investment and Securities said.

The import cost of iron ore from China, for example, came down to almost $100 per metric ton from $140 in early 2024. Coking coal prices also dramatically went down in March to nearly 25 percent lower than their peak earlier this year, according to Hana Securities.

Steel companies will be able to post better sales in the second quarter when steel orders from the construction industry tend to increase, analysts added.