SEOUL: South Korea’s POSCO Holdings on Thursday reported a 4.5 percent fall in second-quarter operating profit, in line with its estimates, as raw material costs rose more than the prices of its steel products.
The holding company of South Korea’s largest steelmaker said its consolidated operating profit fell to 2.1 trillion won ($1.61 billion) in the April-June quarter, from 2.2 trillion won a year earlier. Revenue rose 25.7 percent to a record 23 trillion won.
Its steelmaking unit POSCO raised the prices of some products through negotiations with customers such as shipbuilders and automakers, but that was offset by rising prices for coking coal, an essential material for steelmaking, analysts said.
Analysts added that POSCO Holdings’ third-quarter operating profit is likely to decline from the second quarter as steel prices are expected to fall on weak demand amid recession fears.
Sluggish demand in China, the world’s largest steel producer and consumer, is depressing the commodity’s prices, said Park Seong-bong, an analyst at Hana Financial Investment.
“Demand in China, despite the lifting of lockdowns, did not recover at all in June, which was unexpected,” he added.
Industry data shows that the price of iron ore imported into China’s port of Qingdao indicates weaker Chinese demand, falling 35 percent in mid-July to $104 a ton from $159 in April. Iron ore is used to make steel.
“Steel prices are likely to continue their downward spiral on recession concerns and delays in China’s infrastructure investment,” said Byung Jong-man, an analyst at NH Investment & Securities.
Yi Hyun-soo, an analyst at Yuanta Securities, said heavy rains and a heatwave in China would also discourage steel demand.
However, market conditions are likely to improve as steel consuming companies stockpile ahead of September-October, Yi added.
Chinese steel demand rebounds in September and October after the summer hiatus as construction activity picks up.
($1 = 1,307.3500 won)