It is reported that Korea's local steelmakers are breathing a collective sigh of relief as they look forward to higher earnings in the second quarter owing to clipped raw material costs. However, anxiety about what lies in store in the latter half of 2012 runs deep as demand for steel is expected to remain flat amid a protracted global slowdown.
POSCO announced that it raked in KRW 9.22 trillion in sales and KRW 1.05 trillion in operating profit in Q2. Sales slid 2.5% QoQ but earnings skyrocketed 150% due in part to booming demand for high value added steel products such as steel plates for automobiles. The steel unit aims to ramp up exports of steel plates for automobiles to meet its overall target of KRW 37.5 trillion in sales for the year. The entire group is aiming to reach sales of KRW 70 trillion.
Mr Lee Young hoon SVP & head of strategy at POSCO said that "Of its 70 subsidiaries, the group plans to sell off at least 10 that are losing money by the end of the year."
Some of Daewoo International's subsidiaries are believed to be included on the list.
According to an employee from the company, global steelmakers have been discussing ditching the quarterly contract system for iron ore and opting instead for year long agreements as it is projected to see further price drops.
Hyundai Hysco, which supplies cold rolled steel plates for automobiles, also disclosed its Q2 performance. It said it earned KRW 2.22 trillion in sales and KRW 123 billion in operating profits on a consolidated basis, a windfall triggered by record overseas sales by its parent company Hyundai Motor Group.
Mr Park Hyun wook, an analyst at HMC Investment & Securities, said that "Hyundai Hysco is probably the most stable company among steel manufacturers, because it has a very secure client in Hyundai Motor."
Hyundai Steel, the automotive group's hot rolled steel manufacturer, is slated to announce its Q2 earnings on July 27th 2012. It is forecast to see operating profits grow to about KRW 324 billion, representing on quarter growth of 107%. The company has been enjoying robust sales of section shaped steel, or H steel. It started raising the products' export prices in April 2012.
Steelmakers endured one of their rockiest periods in recent history in the first half of this year, and the next six months seem to offer little in the way of respite as global demand for steel products is forecast to remain flat.
One major cause is the slowdown in China, which accounts for 45% of global steel consumption. Analysts like Mr Jeon Seung hoon at KDB Daewoo Securities forecast no further growth in terms of demand or investment in the industry in China.
Analysts said that Beijing's recent announcement that it will curb real estate prices looks like another roadblock hampering the recovery of demand in 2012.
Mr Park of HMC said that "It's not easy for Chinese steel manufacturers to slash production, even though local steel prices have gone down and demand is not growing, because 90% of steel mills have furnaces that are difficult to idle once started."
A bigger concern is the steel supply glut, which means inventories need to be sold as demand remains weak.
Mr Park Byung chil, an analyst at IBK Investment & Securities, said that "The steel industry has increased its production capacity for two years, but now steel mills are operating at 90% on average. As a result, steel producers had 4.52 million tonnes of inventory in May 2012, up by 19.1% YoY."
The fiscal crisis in the euro zone could exacerbate the problem of oversupply as it has already dealt a blow to Korean exports, especially in the shipbuilding industry.
Mr Park said that "As liquidity has frozen up in the European shipping industry, ship orders were slashed by 65% in the first half."
Source - Korea Joongang Daily
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