Soaring coal price to benefit POSCO, Hyundai Steel - Korea Times
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Soaring coal price to benefit POSCO, Hyundai Steel

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POSCO surpasses 3 trillion mark in quarterly operating profit for first time

By Yi Whan-woo

POSCO and Hyundai Steel are anticipated to generate hefty profits in the second half of this year, driven by the surging coal price in China that has led to a rise in the cost of steel production amid increased global steel demand.

In a preliminary earnings guideline, Wednesday, POSCO said it posted a record quarterly operating profit of 3.11 trillion won ($2.64 billion) during the July-September period.

This is the first time the company's quarterly operating profit surpassed the 3 trillion won mark.

POSCO's third quarter operating profit forecast was up from the 2.2 trillion won it reported a quarter earlier.

Its quarterly sales stood at 20.6 trillion won, up 12.68 percent from the April-June period.

While POSCO is scheduled to specify its business outlook for the fourth quarter at a scheduled conference call with investors, Oct. 25, FnGuide, a financial service information provider, expected the steelmaker to report an operating profit of at least 2 trillion won.

If realized, the country's largest steelmaker will achieve a profit of over 8 trillion in 2021.

The country's other leading steel maker, Hyundai Steel, has yet to announce its preliminary earnings guideline for the third quarter.

However, market researchers said that Hyundai Steel's third quarter operating profit is expected to have skyrocketed to 732.8 billion won.

The operating profit of the nation's No. 2 steel manufacturer in the October-December period is estimated to remain in the 700 billion won range with sales surpassing 2 trillion won this year.

POSCO steel mill in Pohang, North Gyeongsang Province / Korea Times file
POSCO steel mill in Pohang, North Gyeongsang Province / Korea Times file

Hyundai Steel plant in Dangjin, South Chungcheong Province / Korea Times file
Hyundai Steel plant in Dangjin, South Chungcheong Province / Korea Times file

The expected brisk business performances of the two companies both in the third and fourth quarters are based on China's failure to weaponize its trade with Australia over a diplomatic row that has brought about struggles to find alternatives for Australian coal.

"The tight supply of steel worldwide is expected to benefit POSCO and Hyundai Steel thorough this year," an industry source said, noting the October-December period is considered as a peak season and that prices will continue to rise.

China had sought to make up for the coal shortage by tapping into its own mines. But recent heavy rains have forced the closures of 60 coal mines in Shanxi province, which is home to the country's largest coal mining hub, foreign media reports said. The heavy rains also hit the adjacent province of Shaanxi, which ranks third in the country for coal output.

Under the circumstances, the price of thermal coal futures has more than doubled this year and on Monday reached a record 1,408 Chinese Yuan ($218) on the Zhengzhou Commodity Exchange.

With coal accounting for nearly 60 percent of China's total energy use, the shortage has prompted a power crisis and affected energy-intensive steel mills.

The monthly average price of iron ore, the core raw material for steelmaking, has been on a downward trend, from $214.1 per metric ton in July to $162.2 per metric ton in August and $124.5 per metric ton in September, according to World Bank data released this month.

This still could not stop steel production costs in China from rising.

For instance, the price of hot rolled steel and reinforced bars climbed by $20 to almost $800 per ton in the country over the past several weeks. Global steel demand on the other hand has been climbing, with many projecting it to expand by 5.8 percent with related industries recovering from the pandemic.

Yi Whan-woo

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