POSCO's 71% plunge in Q3 income flags dismal outlook for Korean manufacturers

POSCO Holdings suffered more than 70 percent plunge in operating income in July-September period against a year ago due to its first-ever steel mill suspension from flood-caused outage on top of rising toll from soaring material and fuel prices to flag dismal prospects for South Korean manufacturers faced with reduced external demand and spike in production cost.

Korean steel giant whose main furnace in Pohang, North Gyeongsang Province had been shuttered for the first time in its 49-year history in September on Wednesday reported 900 billion won ($629.4 million) in operating income for the third quarter, down 57 percent on quarter and 71 percent on year.

“The operation disruption due to the flood caused one-off cost and ate into about 440 billion won in the consolidated income in the third quarter,” said the steelmaker’s parent POSCO Holdings.

The blast furnaces in Pohang had been plugged off for less than a week, but annual sales fell by about 2 trillion won as the result.

Pohang steel plant’s revenue last year reached 18.5 trillion won, which means that the operation halt led to a daily loss of 50 billion won.

Sales of POSCO Holdings fell 7.9 percent on quarter and rose 2.9 percent on year to 21.2 trillion won in the past quarter. Shares opened Thursday 1 percent lower at 252,500 won.

POSCO aims to normalize operation by the end of this year, while the Ministry of Trade, Industry and Energy predicts full normalization could take place early next year.

Despite the misfortune of the largest steelmakers, its domestic rivals are projected to have performed sluggishly due to jump in international raw materials and fuel costs.

The situation could worsen due to escalating energy instability.

The Organization of Petroleum Exporting Countries (OPEC) Plus has decided to reduce daily crude production by 2 million barrels, further tightening energy crunch ahead of a colder weather.

On top of external challenges, Hyundai Steel Co. is struggling with labor conflict.

Operations of is Ulsan factory were suspended on Sept. 28 and Oct. 19~20 due to walkout by labor union members.

“An increased production setback due to the strike at Hyundai Steel on top of unstable supply from Pohang steel plant may affect the overall downstream industries,” said an unnamed industry official.

Korean industrial sites face rises in power bills.

Korea Electric Power Corporation has raised electricity rates for industrial users by up to 11.7 won per kilowatt hour from October that could raise power bills by millions of dollars for big energy spenders, while global demand is quickly sagging on global-wide inflation.

Exports of petrochemical products in September fell 15.1 percent on year to $4.07 billion amid weak demand due to inflation and lower export unit price from excessive supply.

The ethylene spread – a key profitability index of petrochemical companies – halved to $159.5 per ton on Oct. 14 from $335 on Sept. 9. The spread is far lower than the break-even point of $300 per ton. Ethylene is a source material for plastics, construction equipment, and vinyl.

The heyday for refiners also would come to an end.

The refining margin – which is the difference between the value of petroleum products and crude oil – averaged at $7 per barrel range in the third quarter, compared with $24.5 in June.

Car majors also have one-off issues in the third quarter.

The consensus for Hyundai Motor’s operating income came to 3.1 trillion won in the July-September period and 2.3 trillion won for Kia.

But Hyundai Motor Group said it was reflecting 2.9 trillion won – Hyundai Motor 1.36 trillion won and Kia 1.54 trillion won – in the third-quarter statement in reserves for the recall of Theta II engine.

The automakers’ sales in the U.S. have begun to be affected by the U.S. Inflation Reduction Act that offers credits to electric vehicles manufactured and assembled in the United States.

Shippers must grip for a bust year from global economic slowdown.

Korea’s sea flag carrier HMM is projected to log an operating loss in the latter half of next year, according to brokerages.

Japan-based investment bank Nomura which projected HMM to have raised 2.8 trillion won in operating income on sales of 5 trillion won in the third quarter expects the shipper would shift to an operating loss in the second half of next year.

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