Posted on 03 Feb 2020
POSCO said Friday that it will increase sales of value-added products in order to deal with the aggravating environment surrounding its steelmaking business.
However, uncertainties remain over its outlook as Chinese rivals are keeping their output at a high level, while the Chinese housing market is anticipated to slow down in the second half of the year.
“POSCO saw its profitability aggravating due to rising raw material costs amid the global economic slowdown, deteriorating steel demand and stronger protectionism last year,” head of POSCO’s corporate strategy and planning division Chon Jung-son said in a conference call discussing last year’s earnings.
“In 2020, POSCO will defy the adverse business environment by expanding sales of premium and eco-friendly products and materials for secondary batteries.”
The company backpedaled in both quarterly and yearly earnings last year, as its main steelmaking business sank despite solid earnings by its non-steel units.
In the fourth quarter, it logged 16.04 trillion won ($13.5 billion) in sales and 557.6 billion won in operating profit, down 3.48 percent and 56.15 percent from a year earlier, respectively. In the yearly performance, the company posted 64.37 trillion won in sales and 3.87 trillion won in operating profit, down 0.9 percent and 30.2 percent from 2018, respectively.
POSCO head finance officer Lim Seung-kyu said, “We managed to increase sales volume by 400,000 tons, and the group’s non-steel units showed a recovery in profitability to minimize the decline in profitability.”
POSCO spent last year in a slump as it failed to reflect increased iron ore prices in its product prices, while its Chinese rivals kept their output at a high level.
According to the Korea Mineral Resource Information Service, iron ore prices had been between $60 and $80 per ton in 2018, but soared above $80 from February last year, peaking at $122.2, July 5, following a dam accident at a Brazilian mining field and a typhoon in Australia. The price hovered over $90 in the second half of last year.
Reflecting the increase in costs, POSCO attempted to increase the prices of products it supplies to carmakers, shipbuilders and other clients by 70,000 won per ton, but reportedly ended up making only a 20,000 to 30,000 won hike.
For this year, POSCO said it will demand a sharper hike in prices as the iron ore cost remains at a high level.
“On average, the price of iron remained strong at $94 per ton last year, following a number of incidents including the Brazil accident, and we expect the average for this year to stand between $80 and $85, which is still higher than previous years,” POSCO head of raw material office 1 Kang Sung-wook said. Marketing strategy office Kim Young-joong added that the company will demand a price hike for carmakers and shipbuilders in the first quarter.
Casting a negative outlook, however, is the solid output of Chinese steelmakers. According to Meritz Securities analyst Min Sa-yeong, the blast furnace operating rate of Chinese steelmakers stood at around 80 percent in the fourth quarter of last year and output “may increase further as steelmakers will introduce new facilities this year.”
“Another factor is the projected slowdown of the Chinese housing market in the second half of this year,” Min said. “If the Chinese real estate market slows down to the level of 2018, there will be 60 million tons of oversupply at least.”
POSCO said it plans to supplement the slowdown in steelmaking from revenues in non-steel businesses, including energy, trading and battery materials for producing cathodes and anodes.
“This year, POSCO Chemical expects it will produce 60,000 tons of cathode and anode materials and log 700 billion won in sales, which is a three-fold increase from last year,” POSCO said during the call.
Source:Korea Times
