Posco reports record quarter as global economy rebounds

Posco's consolidated net profit jumped 162 percent in the first quarter on year to 1.14 trillion won.

Quarterly revenue was 16.1 trillion won, up 10.5 percent. Operating profit was 1.55 trillion won, a 120 percent increase. By operating profit, this was the company's best performance in 10 years.

"Thanks to the distribution of vaccines and government policies to boost the economy, we've seen a rapid recovery in global and domestic markets and as a result were able to see growth across all business segments," said Chon Jong-sun, head of Posco's global infra business unit during a conference call, Monday.

Steelmaking generated 952.2 billion won of quarterly net profit, a 110 percent jump, on revenue of 7.8 trillion won, up 11.9 percent on year, while operating profit jumped 134.2 percent on year to 1.1 trillion won.

Posco Chemical and Posco International posted net profit records.

The steelmaker's overseas units in Indonesia, China, India and Vietnam all succeeded in returning to profit this year after net losses in the first quarter of 2020.

Based on a positive assessment of this year's market situation, Posco revised its 2021 consolidated revenue outlook to 32.8 trillion won, up from the 27.9-trillion-won estimate in late January. The steelmaker's 2020 revenue was 26.5 trillion won.

A number of indicators are positive. Steel prices are going up, clients are rapidly using up inventory while Chinese rivals were facing pressure to cut production to meet environmental regulations. The price of iron ore is high at the moment but expected to fall in the second half, the company said.

"Globally, we're seeing steel supply failing to meet demand," said Kim Young-joong, Posco's marketing strategy head, during the conference call.

"According to the global market price, we've been hiking steel prices and yet orders for June are almost full already. Considering circumstances in the global market, this tendency is expected to continue for a while."

As steel is one of the biggest industrial culprits in carbon emissions, Posco faces the long-term task of overhauling production methods and its business portfolio.

In Korea's Phase 3 emission trade scheme, which starts this year and runs through 2025, Posco will have to buy carbon credits. Previously, it was granted enough in free allocations.

"Regulations are tougher for Phase 3 and allocations to Posco are smaller compared to the anticipated volume of carbon emissions," said Chon. "Therefore we are likely to purchase more credits, but the financial costs won't be substantial enough to affect our performance."

Between 2021 and 2023, Posco is planning investment of 1.3 trillion won to reduce carbon emissions at production sites in Pohang and Gwangyang. The goal is to reduce carbon emissions by 10 percent at its production facilities by 2030.

Another potential risk is the coup d'etat in Myanmar, where Posco International and Posco Chemical are active.

Earlier this month, Posco Chemical said it would sever ties with the military-owned Myanma Economic Holdings Limited. Posco International is partnered with the state-owned energy firm Myanma Oil and Gas Enterprise (MOGE) in an offshore gas field.

Chon denied allegations that the gas field is linked to Myanmar's military.

"We've been a partner of MOGE for 20 years and maintained that relationship even as the administration changed," said Chon. "All profit goes to the Myanmar government's finance ministry. We don't believe the business has direct ties to the military."

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]