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Korean steel majors positioned as 2021 market darlings

By Nov 18, 2020 (Gmt+09:00)

Corporate earnings generally come in line with estimates from market analysts, who closely monitor industry conditions. But this year, one sector analysts missed, by a big margin, was the steel industry.

In the case of POSCO, South Korea’s largest steelmaker, analysts’ consensus operating profit estimates were 16% above actual results in the first quarter and 24% lower in the second quarter. For the third quarter, they overestimated POSCO’s earnings by 39%.

POSCO, the world’s fifth-largest steelmaker, said last month it has swung to an operating profit in the July-September quarter from the previous quarter, when it reported its first-ever loss due to the fallout from the COVID-19 pandemic.

The steeper-than-expected cut in global steel demand amid the pandemic has put market watchers in a bind, resulting in steelmakers' volatile share price movements.

Steel production at POSCO's Gwangyang steel mill
Steel production at POSCO's Gwangyang steel mill


But most analysts concur that Korea’s major steelmakers will stage a significant rebound next year, citing signs of an economic recovery, particularly in China, alongside aggressive stimulus spending by governments in many countries.

Shares of POSCO have risen 14.7% this month to close Wednesday at 238,500 won, a level seen before the coronavirus outbreak. Gains were led by institutional investors, who bought 102.2 billion won worth of POSCO shares. Foreigners have purchased 46.3 billion won in shares.

Hyundai Steel Co., the country’s No. 2 steelmaker, saw its shares rise 11.8% in the same period. Smaller firms have performed better, with Dongkuk Steel Mill advancing 14.5% and Daehan Steel gaining 33.7%.

Steel demand from automakers and builders dried up in the first half of the year as many countries around the world imposed lockdowns in efforts to contain the spread of the coronavirus.

But since then, heavy stimulus spending in big countries, including China, for construction and infrastructure has helped lift steel consumption.


According to the World Steel Association (WSA), global steel demand is forecast to rise to 1.8 billion tons in 2021, up 4% from 1.73 billion tons this year as steel consumption is spreading from China to other countries, including India and Japan.

“With its economic rebound, China’s steel prices will remain at elevated levels for the time being, which is a good sign for Korean steel majors such as POSCO and Hyundai Steel,” said Kim Yu-hyuck, a Hanwha Investment & Securities analyst. “Higher Australian iron ore prices will also provide a tailwind.”

Analysts expect POSCO’s operating profit to rise more than 50% to 3.46 trillion won ($3.14 billion) in 2021. The estimate is 9.1% higher than their consensus in October.

Hyundai Steel’s operating profit is forecast to increase more than fourfold to 517.6 billion won next year.

Korean steel majors positioned as 2021 market darlings

POSCO has been favored by investors as a dividend stock as its dividend payout ratio, which currently stands at 4.18%, is higher than Hyundai Steel’s 2.33% and SeAH Besteel’s 2.9%.

Another positive for POSCO is the company’s planned share buyback. The company, which plans to buy 1 trillion won in treasury shares by April next year, has so far purchased 626 billion won worth of its own shares.


Analysts say smaller steel companies have relatively less upside potential, given their weak price competitiveness against Chinese rivals.

“Smaller steelmakers will likely post weaker earnings next year. In terms of shares to buy, you’d better focus on the majors,” said KB Securities analyst Hong Sung-woo.

Some analysts, however, warn that tighter global environmental regulations will limit steelmakers' growth.

During his presidential campaign, US President-elect Joe Biden vowed to impose a “carbon adjustment fee” on imports from countries that fail to cut emissions.

“One of the big risks for the steel industry is the Paris Agreement on Climate Change, which takes effect next year. Steelmakers account for about 7-9% of global carbon emissions and their businesses could come under pressure, meaning weaker share prices, unless they take action to lower emission levels,” said Samsung Securities analyst Baek Jae-seung.

Write to Yun-Sang Ko at

In-Soo Nam edited this article.
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