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South Korea's POSCO racks up record profit on strong steel demand

Company braces for higher costs stemming from EU Green Deal

South Korean Steelmaker POSCO's operating profit rebounded strongly in April to June, helped by strong demand from global automakers and shipbuilders.   © Reuters

SEOUL -- Steel giant POSCO's operating profit reached an all-time high in the second quarter thanks to strong demand from global shipbuilders and home appliance makers.

South Korea's largest steelmaker said Thursday that its operating profit soared more than 1,100% to 2.2 trillion won ($1.9 billion) in the three months through June, rebounding sharply from 170 billion won in the same period in 2020, when it was hit hard by the coronavirus pandemic. POSCO's revenue, meanwhile, rose 33.3% to 18.3 trillion won during the same period.

Quarter-on-quarter, the company's operating profit rose 41.9%, while revenue climbed 13.8%. POSCO attributed the gains to strong demand from the auto manufacturing and shipbuilding industries, which are recovering from the pandemic. Shipbuilders, in particular, are enjoying stronger orders from shipping lines, driven by rising trade volume.

The steelmaker also said its net profit rose 1,710% on the year to 1.8 trillion won during the quarter.

"The shipbuilding industry is enjoying the best upbeat market historically. Shipbuilders already secured orders for three years," said Kim Young-joong, marketing strategy executive at the company, in the conference call. "Demand from home appliance makers is also strong thanks to the stay-at-home economy." 

Analysts say the strong demand is set to continue through the rest of the year, further boosting POSCO's earnings in the second half.

However, the company faces regulatory risks from the European Union, as last week it announced its Green Deal plan. The 27-member bloc aims to introduce a border adjustment mechanism for carbon emissions on iron and steel, cement, fertilizer, aluminum and electricity generation, starting in 2023. Analysts say the move could raise costs for POSCO by 179 billion won per year.

POSCO said that it will change its furnaces to electric ones from 2030 to reduce carbon emissions. The steelmaker said each furnace may cost 500 billion won to replace. 

South Korea's government hosted an emergency meeting with the country's steel-makers, including POSCO, last week, urging them to make preparations. The Ministry of Trade, Industry and Energy said authorities will support the steel-makers with tax, finance and research and development incentives.

South Korea exported iron and steel worth $1.5 billion to the EU in 2020, down from $2.1 billion a year ago, according to the ministry.

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