POSCO Group plans to inject 46% of total investments into battery business

[Courtesy of POSCO Group]

The market capitalization of POSCO Holdings Inc., the parent of South Korea’s biggest steelmaker POSCO, has surged to fourth place, reflecting the market’s expectations for POSCO Group’s future strategy centered on environmentally-friendly steel production and battery materials.

POSCO Group is actively responding to the trend of strengthening decarbonization regulations by building a hydrogen reduction steel plant that produces steel products with green hydrogen. According to POSCO’s plan, the company will be able to produce steel products without emitting any carbon from 2050.

In addition, the company plans to invest 60 trillion won ($46.92 billion) in battery materials by 2030 to build an “integrated value chain” from mineral production to transportation, processing, and production. This move is expected to play a pivotal role in supporting domestic and international electric vehicle and battery companies seeking to break away from the supply chain of secondary battery materials dominated by China.

POSCO Group’s major listed companies, including POSCO Holdings, POSCO International Corp., and POSCO Future M Co., announced their preliminary results for the second quarter of this year on Monday. POSCO Holdings, the group’s holding company, posted sales of 20.1 trillion won and operating profit of 1.3 trillion won. Although sales fell 12.6 percent and operating profit dropped 38.1 percent from the same period a year earlier, it is considered a strong performance given the sluggish global markets, including China.

General trading company POSCO International recorded sales of 8.87 trillion won, down 19.9 percent and operating profit of 3.57 billion won, up 11.4 percent during the same period. POSCO Future M, a company specializing in battery materials, achieved sales of 1.19 trillion won, up 48.5 percent, and operating profit of 521 billion won, down 5.6 percent.

Overall, despite the decline in performance compared to the same period of the previous year, there was a clear trend of improvement compared to the first quarter of this year. In fact, POSCO Holdings and POSCO Future M surged 85.7 percent and 157.3 percent in operating profit, respectively, compared to the previous quarter. POSCO International also posted a 27.8 percent increase in operating profit over the same period.

“We quickly recovered 1 trillion won in quarterly operating profit in the steel sector, which suffered from the flooding of Pohang City and the economic downturn,” said Jeong Ki-seop, chief strategy officer at POSCO Holdings, at a briefing for securities firms on the second quarter results. “The recovery of profits in the steel sector, which is the core business of the POSCO Group, is very significant, as the global competitiveness of the steel sector, coupled with our new business growth strategy (such as secondary battery materials) can create a virtuous cycle of corporate value.”

[Courtesy of POSCO Holdings]

In fact, POSCO Co., a wholly-owned subsidiary of POSCO Holdings and the group’s flagship company, announced earlier this month that it will expand its crude steel production capacity through its first major capital investment in 10 years. The goal is to achieve sales of 100 trillion won and an annual steel production capacity of 52 million tons by 2030, leapfrogging into the world’s fifth-largest steel company.

POSCO’s crude steel production capacity has been frozen at 43 million tons for the past decade, but the company has proposed an unprecedentedly aggressive goal of increasing its crude steel production capacity by 10 million tons over the next seven years. “The steel market has passed its low point,” said a POSCO official, “and price increases are expected due to the impact of Chinese steelmakers’ production cuts.”

Amid this increase in production capacity, the market’s attention is focused on hydrogen reduction ironmaking, considered the future of steelmaking. Advanced countries, led by the European Union’s Carbon Border Adjustment Mechanism (CBAM), are increasingly tightening regulations on carbon emissions during the manufacturing process.

Hydrogen reduction ironmaking involves injecting hydrogen into iron ore to extract pure iron, producing only water as a byproduct, unlike conventional blast furnaces that emit carbon dioxide. However, the commercialization of hydrogen reduction ironmaking is still uncertain due to the lack of visible achievements in hydrogen technology. Green hydrogen, which is required for hydrogen reduction ironmaking, is produced from renewable energy by splitting water. However, securing sufficient green hydrogen is not an easy task, as it requires significant power, and the ability to generate it through renewable sources such as solar energy remains a question. In this regard, analysts are cautious about POSCO’s hydrogen projects, emphasizing the uncertainty surrounding the hydrogen economy itself.

POSCO Group’s expansion of its business portfolio from steel to battery materials is another reason for the market’s reassessment of the group. POSCO Group has already established a supply chain for cathode and anode materials by extracting lithium from seawater in Argentina and Australia and bringing it to the Yulchon Industrial Complex in South Jeolla Province.

The U.S. Inflation Reduction Act (IRA) provides subsidies for key minerals used in batteries for electric vehicles only if they are mined and processed in the U.S. or a country that has a free trade agreement (FTA) with the U.S., which is why POSCO has quickly established a de-China supply chain. The IRA is aimed at excluding China from the battery supply chain.

“Out of the planned investment of 121 trillion won by 2030, 46 percent will be invested in the field of battery materials,” said Jeong. “We have been focusing on lithium brine, but since Chile and Bolivia are nationalizing lithium brine lakes, we will expand to ore lithium and increase lithium production.”

Overall, the non-steel sector is steadily increasing its share in POSCO Group’s total revenue, rising to 58 percent in 2022 from 53 percent in 2018, due to the group’s aggressive business expansion in the field of secondary battery materials.

In the first half of this year, POSCO Future M signed large-scale cathode material supply contracts totaling 83 trillion won with domestic and foreign battery companies including Samsung SDI Co., LG Energy Solution Ltd., and Ultium Cells LLC.