POSCO Holdings stock weighed by furnace outage and rising costs

[Photo by MK DB]

Shares of POSCO Holdings, a listed parent for mainstay steel and battery materials of South Korea's sixth largest conglomerate POSCO, are extending free fall as the outage of a key furnace for the first time in its history from typhoon has worsened business outlook on top of rising production cost from expensive material imports and weakening global demand.

POSCO Holdings shares fell over 10 percent so far this year and 40 percent from their peak in May last year. They closed down 3.43 percent at 239,500 won ($172.19) on Wednesday.

Foreign investors shifted to net selling position this month after keeping up buy from January to August. Institutions sold a total of 201 billion won ($144.2 million) worth this year.

POSCO early this year separated into a holding entity POSCO Holdings and unlisted standalone steel-making subsidiary POSCO for balanced growth of steel-making and new businesses of secondary battery materials and hydrogen and green identity.

The new stock however did not perform up to expectations.

The group has shifted to emergency mode since July to cope with the worsening business conditions from protracted surge in commodity prices, coupled with slowing demand.

POSCO Holdings reported its first-half operating profit rose 16.1 percent on year with sales up 29.1 percent during the same period. Its quarterly operating profit, however, fell to 2.1 trillion won in the second quarter from 2.2 trillion won a year earlier. Full-year operating profit is projected to fall 17.4 percent from last year due to heftier costs and marketing expenses, according to financial data tracker FnGuide.

Worse, cash flows have been sinking due to strengthening in raw material costs. The holding firm¡¯s operating cash flow plummeted 87.2 percent to 283.7 billion won in the first half this year against a year-ago period, while trade receivables and inventories piled up 22.7 percent and 18.1 percent, respectively, from the end of last year.

For record profits last year, the company paid 1.86 trillion won in tax dues.

Typhoon Hinnamnor has halted operations of its steel manufacturing plant in the southeastern city of Pohang due to flooding since last week. It was the first time that steelmaker¡¯s key steel making facilities came to a complete stop since the establishment in 1973.

Three blast furnaces started operation Tuesday after a week-long suspension, but it can be very expensive to restart them if the restoration work is delayed. The company could lose out an estimated 1 trillion won for a month or 34 billion won for each day, according to analysts.

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