Posco's net jumps despite higher costs, beats expectations

Posco Center in Gangnam, southern Seoul, in July. [NEWS1]

Posco reported 1.81 trillion won ($1.6 billion) in consolidated net profit in the second quarter, up more than 1,700 percent on year.

Operating profit for Posco, the largest steelmaker in Korea and No. 6 globally, was 2.2 trillion won, beating market estimates and a hitting record.

Sales were up 33.31 percent during the same period to 18.29 trillion won.

The consolidated earnings include those of its subsidiaries, a list that include Posco International, Posco E&C, Posco Energy and Posco Chemical.

Strong demand for steel from the recovering automobile, shipbuilding and construction industries and the increase in steel prices contributed to Posco’s growth “despite raw material price hikes,” according to the company.

The price of iron ore as of July 16 was $219.7 per ton, almost double the price a year earlier, according to Korea Mineral Resource Information Service.

Posco added that China’s policy on steel will be “a major variable” for steel supply.

“China is inducing a cut in production to achieve carbon neutrality, and is suppressing exports for the stabilization of the steel market,” said a spokesperson for Posco during a conference call held Thursday.

The increase in steel prices and the tightened supply is expected to help the company achieve sturdy earnings through at least the third quarter of 2021, despite the rise in raw material prices, according Baek Jae-seung, an analyst at Samsung Securities in a report.

Higher cathode material prices and “enhanced production efficiency” helped Posco Chemical’s earnings.

It reported 467 billion won in revenue, up 42 percent on year, and 36 billion won in operating profit, up 1,100 percent during the same period.

Prices of cathode materials increased 8 percent quarter-on-quarter.

Posco Energy’s operating profit declined “as electricity prices declined” and as “higher LNG prices pressured margins,” said Posco.
LNG prices were up 33 percent on quarter.

Posco on Thursday vowed to “build global crude steel capacity to reach over 60 million tons by 2030” to become the third-largest steel producer after the China Baowu Group and ArcelorMittal.

The company produced 46 million tons of steel last year.

Posco shares rose 4.69 percent Thursday.

BY JIN MIN-JI [jin.minji@joongang.co.kr]