Rising copper prices help Poongsan, hit LS-Nikko

Rising copper prices on a global economic recovery helped a South Korean non-ferrous metal product maker Poongsan Corporation improve its earnings, while hurting profits of LS-Nikko Copper Inc., the country’s only copper refining company. Poongsan makes sheets, rods and coins with copper LS-Nikko supplies.

LS-Nikko has been suffering from falling refining margins on intensifying competitions against Chinese producers, while Poongsan is expected to report record earnings this year thanks to rising inventory valuation gains on rising copper prices.

POONGSAN ENJOYS

Poongsan, the country’s No. 1 copper processing company, logged 106.4 billion won ($89.9 million) in operating profit on a consolidated basis in the second quarter, about a quintuple of 21 billion won a year earlier. Its first half operating profit stood at 168.9 billion won, already topping 121.2 billion won profit for the whole of 2020.

The London Metal Exchange’s copper cash official price was at $9,346.5 per ton as of Aug. 17, up 42.4% from a year earlier, although its rising momentum slightly eased from May when it was exceeded $10,000 a ton. Copper is regarded as a leading indicator as its demand is influenced by plant facilities, construction materials, vehicles and machinery business.

Poongsan is predicted to report an operating profit of more than its all-time high of 250 billion won for this year on healthy demand for copper products, according to the industry sources.

LS-NIKKO IN PAIN

On the other hand, LS-Nikko, a joint venture between LS Group and Japan Korea Joint Smelting (JKJS), is suffering from rising copper prices.

LS-Nikko’s earnings in the first half were weaker than a year earlier, according to a company source. The company, in which LS Corp. owns a 50.1% stake, does not announce quarterly results as it is not listed. Last year, LS-Nikko reported 228.5 billion won in operating profit, down 27.5% from 2019.

Its refining margins are often decided when the company signs annual contracts with copper miners such as BHP Group and Freeport-McMoran that always have an advantage in price negotiations.

LS-Nikko’s business conditions are deteriorating as China is building large copper refineries to raise its self-sufficiency to 100% from the current 80%, intensifying price competitions hurt the margins. It is hard to raise copper prices to buyers such as Poongsan since LS-Nikko usually inks supply deals for a long term such as one year.

LS-Nikko aims to overcome such difficulties by introducing a smart factory that use big data and artificial intelligence (AI).

Its Chief Executive Officer Doh Suk-goo said it plans to maximize efficiencies of storage, transportation and production to cut smelting costs.

The company adopted manufacturing enterprise system (MES) and advanced planning & scheduling (APS) last year. It is expected to cut 130 billion won in costs by about 2030 through the smart factory.

Write to Kyung-Min Kang at kkm1026@hankyung.com
Jongwoo Cheon edited this article.