POSCO expects climb after Q2 low

By Nam Hyun-woo

POSCO's sales and profitability will recover in the third and fourth quarters of this year, as its industrial activities worldwide are resuming amid high demand, following COVID-19-led lockdowns and shutdowns in the second quarter, the steelmaker said Tuesday.

The company also stressed China's economic boosting policies are jacking up the demand and prices for steel products, allowing it to make upward revisions to its sales and production outlooks for this year.

“Uncertainties related to COVID-19 remain, but we believe our efforts to expand domestic sales and improve exports to China will result in a recovery in our profitability from the third quarter, after hitting bottom in the second quarter,” the company said during a conference call for its second-quarter earnings.

“As global demand is showing signs of recovery following the Chinese government's policy support, we see higher chances of making an additional hike in steel product prices. We have already made 20 percent to 30 percent hikes in products heading to several export markets and this will be reflected in the third-quarter earnings.”

The remarks came amid the company's efforts to cope with a dive in global steel demand, especially in the automotive, construction and shipbuilding industries, in the wake of the coronavirus outbreak. Of them, the shutdowns of carmakers worldwide have mauled the profitability of POSCO in the second quarter, according to the company.

POSCO said, however, carmakers are resuming their operations in the third quarter, and the demand for automotive plates in the third and fourth quarters is anticipated to grow by 10 percent from in April to June.

Reflecting this view, POSCO updated its 2020 production outlook to 35.3 million tons, up from 34.1 million tons it projected in the first quarter. Also, it revised the sales volume to 33.8 million tons from 32.4 million tons during the same period.

“We expect the automotive plate sales in the third quarter will reach 80 percent of the first quarter,” the company said. “We are replacing imported steel in the domestic market, while our overseas subsidiaries are expecting a robust demand due to strengthened local duties. Thus we expect the sales volume of the third quarter will show an improvement.”

It added the iron ore price will display a downtrend in the third quarter, hovering between $85 and $90 per ton.

During the conference, the company said it will shut down blast furnace No.1 in its Pohang mill next year, and is considering closing additional furnaces at the mill by 2025.

In the second quarter, POSCO logged 5.88 trillion won in sales, down 21.4 percent from a year earlier, and swung to an operating loss of 108.5 billion won, down from 724.3 billion won during the same period.

This marked the first time that the steelmaker reported an operating loss in its quarterly earnings.

In a consolidated basis, however, the company maintained an operating profit of 167.7 billion won, on the contribution of its trading unit POSCO International and energy unit POSCO Energy.

POSCO International reported sales worth 5.25 trillion won and an operating profit of 134.4 billion won in its preliminary earnings report for the second quarter. Sales dropped 18.2 percent and operating profit dipped 25.3 percent year-on-year.

POSCO International said it managed to limit the impact coming from the slowdown in its high-demand industries through pre-emptive cost-saving and risk management. Also, its food trading business showed growth in sales despite the pandemic.

Meanwhile, POSCO International said it donated 30 million won to ChildFund Korea in a bid to help underprivileged children in Incheon, where its headquarters is located.

The company raised the amount through a walking campaign, in which the company donates 30 million won when employees take more than a combined 100 million steps from May to June. POSCO International said employees took a combined 360 million steps.

Like other POSCO affiliates, POSCO International is making efforts to serve the group's philosophy of corporate citizenship through various corporate social responsibility programs.

In February, the company delivered face masks and hand sanitizer to 400 children at childcare centers in the city, and donated 200 million won for POSCO Group's medical relief program in March.