POSCO may see Q1 operating profit reach $900 mn

South Korea's largest steelmaker POSCO may see its operating profit climb to the 1 trillion won ($906 million) range as domestic steel companies expect to benefit from rising steel product prices driven by rebounds in the automobile and shipbuilding industries.

Next month, POSCO and Hyundai Steel Co. both plan to raise their hot-rolled steel plate price by 100,000 won ($91), which will bring the cost to around 950,000 won ($861) per ton, according to the steel industry on Jan. 17. Hot-rolled steel plates are created by rolling out slabs produced from a casting system. They are used as a basic material for steel products.

Domestic steel companies have increased their product prices to accommodate the spike in price of iron ore, the raw material for steel products, which was recently reported as $169.80 per ton. This marks the highest figure since September 2011, soaring by 39.2% over the last three months.

Production costs have risen due to the skyrocketing iron ore price, prompting Korean steel companies to negotiate prices with the automobile and shipbuilding industries. For several years, steel companies have avoided raising product prices in consideration of the woes facing these industries.

“Companies will have no choice but to agree with the price increase given that imported steel prices have also surged,” said a steel industry official.

Recently, hot-rolled steel imported from China stood at around $730 per ton, up at $100 per ton compared to the end of last year. The price has also rose for seven consecutive months in India, reaching $780 per ton in the domestic market.

CUTBACK IN CHINESE SUPPLY TO FACILITATE STEEL PRICE UPTREND

Industry watchers expect the steel price uptrend to persist for some time as China has decided to lower its crude steel production this year as part of its carbon emission reduction policy. Also, China's political dispute with Australia, the world's largest iron ore producer, has caused a setback in its raw material imports.

Despite the rising production costs, domestic steel companies' profitability has improved, thanks to concurrently rising steel product prices.

According to financial data provider FnGuide, POSCO is expected to post an operating profit of around 975 billion won ($883.3 million) in the first quarter on a consolidated basis. However, it may even top 1 trillion won, considering that market consensus continues to revise upwards.

The last time POSCO posted quarterly operating profit in the 1 trillion won range was in the third quarter of 2019. Meanwhile, Hyundai Steel is expected to report 108.5 billion won in operating profit in the first quarter.

Write to Man-su Choe at bepop@hankyung.com
Danbee Lee edited this article.