Dongkuk Steel’s Q1 operating profit hits 5-year high as economy recovers

Dongkuk Steel Mill Co., South Korea’s third-largest steelmaker, on Monday reported its largest quarterly operating profit in nearly five years as a rebounding global economy boosts demand.

Operating profit in the January-March period was 109.4 billion won ($96.4 million) on a consolidated basis, nearly double the 56.2 billion won profit the company posted a year earlier. That’s the largest quarterly profit since the second quarter of 2016, and beats the market consensus of 73.9 billion won.

Sales came in at 1.4 trillion won, up 14% on year from 1.23 trillion won.

The bottom line turned into the black by posting a net profit of 27.6 billion won from a loss of 120.8 billion won in the year-earlier period. It’s partly because Dongkuk’s Brazilian affiliate posted an operating profit of 154.1 billion won, the biggest since the Latin American plant went into operation in June 2016.

“Strong demand from construction companies and home appliance makers, coupled with higher product prices that reflected rising prices of raw materials boosted both sales and profit,” said a Dongkuk Steel official.

BAR STEEL, COLOR STEEL

The steelmaker attributed its remarkable performance to its mainstay product (bar) section steel and its blooming color coated steel plate business, products of which have higher margins than general steel products.

With the recovering economic activities, the price of the industry-standard SD400 steel has risen almost 50% to 970,000 won per ton so far this year.

The color steel plate business, in which Dongkuk is the industry leader, is also booming with increasing demand from a variety of sectors ranging from home electronics companies to construction firms and even chipmakers, as consumers have become more self-assertive and want to have their daily goods in style.

The COVID-19 pandemic ushered in the notion of the "at-home economy," in which increased time spent at home has prompted consumers to invest more in home appliances such as TVs, refrigerators and washing machines, driving up demand for color steel plates.

According to the Korea Iron & Steel Association, the domestic output of color steel plates reached 543,645 tons in the first quarter, up 8.2% from the year-earlier period.

Dongkuk Steel commands 35% of the 2.4 million ton a year Korean color steel market.

BRAZILIAN UNIT CSP

For Donkuk, Companhia Siderurgica do Pecem steel mill in Brazil, commonly known as CSP, has long been a thorn in its side.

Since the Brazilian steel mill, in which Dongkuk holds a 30% stake, began operations in 2016, it has run a deficit almost every year, resulting in an accumulated loss of 2.23 trillion won ($2 billion) as of 2020.

But the Brazilian affiliate swung to a profit last year, posting an operating gain of 19.6 billion won and analysts expect CSP to post more than 200 billion won in operating profit this year, adding momentum to Dongkuk Steel, which is also seeing a significant turnaround in its Korean business.

CSP is 50% owned by Brazil’s mining giant Vale S.A. Korea’s top steelmaker POSCO holds the remaining 20% stake in CSP.

Dongkuk Steel said it will strive to ensure a stable supply of steel products in the second quarter to meet surging demand globally.

The ramp-up of color coated steel production lines at its main plant in Busan in July will help the company achieve record earnings this year, it said.

Write to Kyung-Min Kang at Kkm1026@hankyung.com
In-Soo Nam edited this article.