POSCO Holdings suffer 38% decline in Q2 operating profit on steel oversupply

POSCO Holdings Inc.’s office building [Photo by Lee Chung-woo]

POSCO Group, owner of South Korea’s biggest steel mill, saw its second-quarter operating profit plunge by more than 38 percent amid steel oversupply due to the sluggish property market in China.

POSCO Holdings Inc. disclosed Tuesday that its preliminary operating profit for the second quarter came to 1.3 trillion won ($1.03 billion), down 38.1 percent from the same period a year earlier. The decline is attributed to the fall in steel prices.

As new real estate construction in China draws a downward curve, Chinese steel that would have been used as construction materials is being sold overseas at low prices. The areas used for new real estate construction in the country fell 24.3 percent year on year in the first half of this year.

The price of hot-rolled steel in China, in fact, stood at $542 per ton at the end June, down 18.6 percent from a year ago.

The average import price of Chinese hot-rolled steel in Korea also dropped 28.5 percent during the same period. Hot-rolled steel is also produced by POSCO Holdings and is mainly used for building structures.

“The Chinese steel market is showing a completely different pattern compared with a year earlier,” said Chang Jae-hyuk, an analyst at Meritz Securities Co. “The entire steel industry is in recession as the Chinese real estate market fails to rebound despite the government’s stimulus measures.”

Meanwhile, POSCO DX Co., an engineering and information technology services unit under POSCO, announced Tuesday that its preliminary operating profit for the second quarter was 34.3 billion won, up 137.4 percent from a year ago.

Sales rose 55.1 percent to 369.3 billion won during the same period. Net income was 28.3 billion won, up 133.3 percent. The cumulative sales for the first half of the year were 775.8 billion won, up 65 percent from the same period last year and cumulative operating profit 63.3 billion won, up 98 percent.

POSCO DX explained that its improved performance comes on increased business opportunities in the areas of factory automation for POSCO affiliates, smart factories, and industrial robots as it pursued business expansion into eco-friendly future materials including secondary batteries.

Last week, POSCO Holdings, the largest shareholder of POSCO DX, held the “2nd POSCO Group Battery Materials Business Value Day” to unveil the growth vision and mission of the group‘s secondary battery materials business. It announced a goal to achieve 62 trillion won in sales by 2030, up from the 41 trillion won target presented last year.