South Korea’s largest steelmaker Posco reported quarterly operating loss in the second quarter for the first time in two decades after the prolonged COVID-19 pandemic has dragged down both global steel demand and prices.
Posco said in a regulatory filing on Tuesday that it swung to an operating loss of 108.5 billion won ($90.6 million) on a separate basis in the April-June period from an operating profit of 458.1 billion won in the previous three months and 724.3 billion won in the same period last year. It is the first operating loss for Posco since it started reporting its earnings to a regulatory filing in 2000.
Sales on a separate basis reached 5.88 trillion won, down 15.6 percent on quarter and 21.3 percent on year, while net profit plunged 98.5 percent on quarter and 98.8 percent on year to 6.6 billion won.
Posco’s operating loss in the second quarter came sharply below market consensus of 20 billion to 30 billion won loss. Its operating profit margin also plunged to negative 1.8 percent, significantly lower than 6.6 percent in the January-March period.
Shares of Posco finished 2.13 percent higher at 191,500 won on Tuesday.
Posco’s poor earnings in the second quarter were mainly due to a delayed recovery in steel demand as the coronavirus crisis has continued. The weak steel demand has weighed on steel prices, taking a toll on the company’s mainstay steel business. The soft steel demand led Posco’s crude steel production to shrink 1.27 million tons, related items production 870,000 tons, and sales volume 850,000 tons.
Posco’s affiliates, however, fared better. Posco International, its trading arm, delivered stellar sales results thanks to its gas field project in Myanmar, while Posco Engineering & Construction saw improved profitability in construction and plant business, and Posco Energy in terminal project expansion.
On a consolidated basis, Posco raised 167.7 billion won in operating profit, down 76.2 percent against the previous three months, on sales of 13.7 trillion won, down 5.7 percent. Net profit fell 75.9 percent to 104.9 billion won.
Its “Cost Innovation 2020” initiative launched last year also helped the company manage to save 175.2 billion won in the first half of this year.
An official from Posco said that the company aims to improve profitability in the second half of this year by expanding sales of high value-added products such as giga steel and increasing exports to regions that have successfully contained the virus, such as China.
The company projected the company’s earnings have bottomed out in the second quarter.
In a separate conference call on Tuesday, Posco forecast demand for automotive steel products to increase 10 percent in the third quarter from the April-June period. It also expected overseas subsidiaries in China, Vietnam, Turkey, and Thailand to report improved earnings from the third quarter.