POSCO Holdings (005490, hereinafter referred to as POSCO) and Hyundai Steel (004020) are trying to recover profitability by raising product prices. While POSCO is expected to meet market expectations thanks to profit improvement in the steel division in the third quarter, Hyundai Steel is hampered by a decline in sales.
There is a high possibility that the atmosphere will change in the fourth quarter. POSCO is expected to see an increase in sales prices and stabilization of raw material prices, and Hyundai Steel is expected to see a recovery in sales volume.
POSCO's operating profit in the third quarter was around 800 billion won... Improved steel profitability
According to the financial investment industry on the 6th, Hana Securities predicted POSCO's third quarter consolidated sales to be KRW 19.2 trillion and operating profit to be KRW 799.6 billion. The operating profit is broadly in line with the market consensus of 805.4 billion won.
Sangsang Certificates also predicted operating profit in the third quarter to be 808.1 billion won. It is expected that performance will be supported by increased profits in the steel sector and the strong performance of POSCO International's energy business.
In the steel sector, the rise in selling prices helped. It was analyzed that price increases for major actual demand items such as automobile steel plates and shipbuilding plates were reflected in the average selling price (ASP), and as raw material input prices stabilized, the spread between product prices and raw material prices also widened slightly.
Hana Securities estimated POSCO's steel sales volume in the third quarter to be 8.49 million tons. This is an increase of 3.1% compared to the same period last year and 1.5% compared to the previous quarter.
Park Seong-bong, a researcher at Hana Securities, analyzed, “It is believed that the ASP has increased due to the price increase for large actual demand items such as automobile steel plates and shipbuilding heavy plates, and the spread has widened slightly.”
Steel sales in the fourth quarter are expected to decrease to 8.04 million tons due to the renovation of the Gwangyang Steel Mill's 2nd blast furnace and the maintenance of the hot rolling mill. It is expected that the increase in selling prices and the decline in raw material input costs will partially offset the decrease in sales.
POSCO's fourth quarter operating profit presented by Hana Securities was 825.4 billion won. 3.2% higher than expected in the third quarter. The structure is such that the decline in steel sales is compensated for by widening spreads and improving performance of major subsidiaries.
Hyundai Steel’s third quarter sales decline… Operating profit expected to double in the fourth quarter
Hyundai Steel was hampered by a decline in sales in the third quarter. Hanwha Investment & Securities estimated consolidated sales for the third quarter at KRW 5.638 trillion and operating profit at KRW 64.9 billion. The operating profit figure is 44.1% lower than the market consensus of 116 billion won.
As the Chuseok holiday and the construction off-season overlap, sales volume on a separate basis is estimated to have decreased by about 10% compared to the previous quarter. Sales of both plate and long products decreased, and domestic sales of rebar were also sluggish.
The rebound is scheduled for the fourth quarter. Hanwha Investment & Securities predicted Hyundai Steel's fourth quarter operating profit to be 130.1 billion won. This is a double increase from 64.9 billion won in the third quarter.
With sales volume normalizing, price increases for automotive steel sheets and shipbuilding heavy plates are also expected to be reflected in performance. The effect of lower raw material input prices due to the strong won in the third quarter may also appear with a lag.
Kwon Ji-woo, a researcher at Hanwha Investment & Securities, said, “Adjustment of expectations in the third quarter is inevitable, but the sluggish performance is largely due to seasonal volume decline, and the forecast for increased profits in the fourth quarter is still valid.”
Hana Securities also expected its performance to improve in the fourth quarter due to increased sales and widened spreads, after experiencing a decline in sales and narrowing spreads in the third quarter.
The steel industry raised its prices... The key is to stabilize the distribution price
The key to determining the fourth quarter performance of both companies is how well the manufacturer's price increase settles with the actual market price.
Hyundai Steel increased the supply price of hot-rolled, cold-rolled, and heavy plates by 40,000 won per ton in October, but the distribution prices of hot-rolled and heavy plates fell 1% in the first week of October. Imports of hot coil in September also increased by 50% compared to the same month last year, mainly from third-party products.
The sluggish construction economy is also a burden. If the recovery in demand for long products is slow, there are limits to increasing profitability just by raising product prices. On the other hand, strengthening trade regulations on low-priced imported steel products is favorable to domestic companies' price defense.
In the distribution market, the effect of the price increase is not yet clear. As construction demand is sluggish and import volumes are increasing, it remains to be seen to what extent manufacturers' selling price increases will be reflected in actual transaction prices and performance.
