Posco Holdings Inc. Q3 FY2024 Earnings Call

Greetings. I'm CSO of POSCO Holdings. My name is Jeong Kiseop. We have closed third quarter revenues and operating profits at levels very similar to the second quarter. However, steel prices fell slightly deeper than we anticipated. In rechargeable battery materials, key raw material prices continue to decline, creating a challenging business environment. These challenges notwithstanding, we try to stretch profits as much as possible, especially in steel, WTP products, our high-end steel products that make up 32% of our sales, helped to secure a level of profit margin that sustained POSCO's operating profit. In battery materials, lithium hydroxide prices falling below $10,000 per ton. Rapid price decline is exacerbated by the reverse lag created by the time difference between when they are bought and sold. This creates added challenges and disadvantages. In addition, our brine and lithium production plants lined up to complete construction. Anytime a plant comes online, they entail initial investment and operation costs that add to the overall burden of expenditures. However, some have recently been commissioned. The fact that these new plants have been completed and initial pilot operations have gone into effect without a hitch gives us reason to be proud that our lithium production technology and facilities have arrived at commercial scale. Before I give the floor to the Head of IR for more detail on our earnings, I'd like to take a moment to discuss the strategic alliance struck between POSCO Group and JSW Group, which was released yesterday. In your deck, it pertains to slides 5 and 8. With JSW Group in India, POSCO Group has signed an MOU to cooperate not only in building an integrated steel mill in India but also to extend that collaboration into rechargeable battery materials and renewable energy sectors. In steel, we're delving into the details of building an integrated mill in India with at least a 5 million ton capacity. The new upstream plant will have a 50-50 investment from POSCO and JSW Group, focusing on premium automotive steel products. We have been proposed two potential plant sites that we are currently examining. In addition to the JV in steel, we're also discussing collaboration in rechargeable battery materials and renewable energy. While still early in our discussions, we're studying ways to collaborate on LFP-type EV battery materials, in which cost-efficient manufacturing is an essential condition.

I'd like to discuss the consolidated results for the third quarter. Please go to Page 4 of the presentation deck. Overall, the third quarter ended at a similar level to the second quarter. We recorded KRW18.321 trillion for the sales and operating income, KRW743 billion. We made a lot of efforts, but due to the rather sluggish performance in steel and rechargeable batteries and the initial cost of subsidiaries being reflected, that turned out to be a factor. For the third quarter, we have sales and operating income at KRW18.321 trillion and KRW743 billion, with an EBITDA of KRW1.75 billion. Now going into the sectorial outcome, please go to the steel side. On the operating profit, that was KRW466 billion, which is down by KRW31 billion from the previous quarter. POSCO posted an improvement of KRW20 billion, recording KRW438 billion, but because of the deterioration in the profitability of the Chinese subsidies, including Jhanjiangang, we have seen sluggish steel demand in China resulting in these results. The infrastructure segment posted an operating profit of KRW449 billion, up KRW20 billion as the profit improved at POSCO International due to high power generation profit. For the Future M, because of the lower anode active material sales volume and losses in the cathode material, the profit shrunk, and the POSCO Pillar lithium solution began to reflect the initial cost of production entities, including the ramp-up of the POSCO lithium solution and the completion of the POSCO Argentina. Next, I'd like to share with you the major activities in the third quarter. Mr. Jeong spoke about the strategic alliance between POSCO and the JSW Group in India and our successful entry into the Indian market.

You asked three key questions. The first is about the steel market, and we will have Mr. from the Head of Marketing Strategy Office address that. The second question will be addressed by Mr., Chief of Corporate Strategy. Regarding the investment in India, we will ask Mr., Chief of the Steel business. My name is Yoo Young-Sook. The second half of this year, we had mixed signals about either a rebound or a prolonged recession. And it was very much dependent on the stimulus package that was released in China. Since the announcement of the stimulus package, we did see a huge rebound in the Chinese domestic steel prices, but because there were lingering questions about how much impact this would have, the prices began to fall again. In shipbuilding and automobile industries, you asked about the impact in those industries. We have half-year contracts with the OEMs. So when we have these half-year contracts, of course, the third quarter and fourth quarter run on the same prices. But at the beginning of next year, we may see some prices negotiated upward and downward. Currently, in shipbuilding, we have not negotiated the full price for the fourth quarter, so that is upcoming. We are trying to increase our price with some of the shipbuilding companies, but we are facing some resistance. Since the Chinese stimulus package, what projections are we making? As mentioned before, we did see a huge rebound in prices, and rather than thinking that demand would follow suit, we thought that prices had already reflected future stimulus packages. At some point, the price went above $100 per ton, but afterward, it began to reflect some disappointment and thus fell again. However, I don't think it will fall too low. Many steelmakers in China are already in red ink, and the Chinese government is likely to announce another stimulus package in December. Thus, we believe it will hit another rebound pretty soon. On your second question regarding nonessential assets and restructuring, I think the question was, will all of these costs be consolidated in one quarter toward the end of the year? During our earnings release in the second quarter, we announced about 120 restructuring projects and our plans to restructure those assets or businesses. Currently, the restructuring is on schedule and proceeding as planned, with some divestments as well as sales. In some of these cases, we can generate a profit; in other cases, we may suffer some losses. However, profits have outweighed losses, which is why we turned a general profit. In the past, when we sold off nonperforming assets, we generated significant losses. This time, we expect that during this restructuring phase, we will suffer some losses, but overall, we anticipate more profits than losses. Regarding the third question about hydrogen-based steelmaking and the planned blast furnace, hydrogen-based steelmaking is not yet at a commercial scale. We plan to install blast furnaces and use a shaft method, which will require discussions with our partners. In the first stage, we will aim for 5 million tons. The first plant site we are considering is about 1,600 acres, and there is indeed the potential for an expansion to Phase 2. The location of Odisha has several rolling mills, ensuring we will have sufficient supplies from local mills. In our plans, if we establish the upstream process in Odisha, we will secure a good supply chain. Concerning the carbon neutrality goal, we aim for net zero by 2050 while adhering to local regulations. If we invest in a blast furnace in India, we will utilize various technologies to fulfill our carbon neutrality objectives.

I have three questions. My first question pertains to India. What is the demand situation? My second question is on overseas penetration—what updates can you provide regarding the U.S., China, and Southeast Asia? Lastly, about antidumping investigations concerning low-cost Chinese steel products, what is your position, and how will you respond?

To address your first question regarding demand and supply in India, the government intends to increase demand to 300 million tons by 2030. Currently, POSCO estimates demand growth to be about 6% or 7% each year. While there are concerns about oversupply, we believe that the high-end product focus of POSCO will mitigate this. For the U.S. and Southeast Asia, regarding our upstream strategy, we are considering an initiative for 2026 or 2027, focusing on electric furnaces. Lastly, on steel plate antidumping investigations, we will respond to inquiries issued by the Korean government, aiming to protect our domestic steel market.

I would like to ask you about your investments in India, particularly about the 50-50 joint venture stake and potential conflicts arising from that. Also, how is your production targeting the Indian market? Additionally, I want to inquire about the carbon neutrality aspect—how will this be measured in relation to the joint venture? Finally, regarding lithium production, can you tell me about the breakeven point and cost structure?

Regarding the 50% investment, while there may be concerns about conflict, we believe that having a 50% equity stake and a structured Board of Directors will prevent significant conflicts. We are working on securing our site and developing the financial structure over time. The JSW Group aims to expand to 25 million tons by 2030, and our focus will primarily be on the Indian market for this venture. Regarding carbon neutrality, while there will be consolidations, we will also take into account market realities. On the lithium side, while there are pricing pressures, our high-quality brine will maintain our competitiveness. Although we are in the early stages, we believe we will reach profitability as we progress to mass production.

Let me thank everyone who participated today. The earnings release presentation for the third quarter 2024 ends now. Thank you very much for your participation.

The first question is from Hyundai Motor Securities, Mr. Park.