LG Chem's cathode material / Courtesy of LG Chem
Korean producers of cathode materials for electric vehicle (EV) batteries are likely to see a drop in third-quarter operating profits, according to securities analysts, Wednesday.
The pessimistic outlook resulted mainly from decreasing global EV demand and sharp declines in the prices of lithium and nickel, which are key minerals to produce cathode materials. These factors have dragged down the international price of cathode materials.
Given that battery materials firms tend to purchase minerals a couple of months before they produce and supply cathode materials, such companies have no choice but to suffer deteriorating profits if the price of cathode materials falls at the time the production begins with minerals sold at higher prices.
LG Chem, which posted 93.2 billion won ($68 million) in the second-quarter operating profit from its cathode materials business, is expected to suffer a loss from that business in the third quarter.
“The third-quarter operating loss from its cathode materials business is estimated to be 16.3 billion won, as the core metal prices have maximized negative lag effect,” Meritz Securities analyst Rho Woo-ho said.
EcoPro BM’s shareholders have been advised to sell their shares, because the battery materials firm is seen as overvalued, considering the potential fall in its third-quarter operating profit.
Eugene Investment & Securities analyst Han Byung-hwa advised investors to sell EcoPro BM stocks since May as he views it will be difficult for the company to make a turnaround for a while, due to the oversupply of Chinese lithium and the slowdown in the EV market growth in Europe and China.
Foreign investment banks have also recommended investors unload their EcoPro BM shares.
However, Korea Investment & Securities analyst Kim Jung-hwan advised investors not to be too pessimistic about EcoPro BM, although the analyst expects the company’s third-quarter operating profit to fall short of the market consensus.
“Falling prices of lithium and cathode materials will temporarily drag down the company’s operating profit margin to 3 percent,” Kim said.
The cathode materials plant of Ultium CAM, a joint venture between POSCO Future M and General Motors, is under construction in Quebec, Canada, in this file photo. Courtesy of POSCO Future M
Regarding POSCO Future M, there is cautious optimism that its operating profit may rise slightly during the third quarter, thanks to the value chain it has built in collaboration with other POSCO Group affiliates.
Financial information provider FnGuide forecasts POSCO Future M’s third-quarter operating profit to reach 85.5 billion won, up 4.51 percent year-on-year, or a 64.1 percent rise from the previous quarter.
In contrast, Korea Investment & Securities expects POSCO Future M’s operating profit to fall 52 percent year-on-year to 39.5 billion won during the third quarter, although the securities firm said the materials producer will see a recovery in its profitability next year.
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