POSCO Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2024

There are 2 speakers on the call.

Operator

Greetings. This is POSCO Holdings Earnings Release Conference. Thank you all for participating. Today, we will hear a presentation from POSCO Holdings first, and then we will have a Q and A session with all the participants. So now I would like to begin the Q3 2024 earnings release presentation.

Operator

Greetings. I'm CSO of POSCO Holdings. My name is Seung Ki Seop. We have closed 3rd quarter revenues and operating profits at levels very similar to the 2nd quarter. However, fuel price fell slightly deeper than we anticipated.

Operator

In rechargeable battery materials, key raw materials prices continue to decline, creating a challenging business environment. These challenges notwithstanding, we tried to stretch profits as much as possible, especially in steel, WTP products, our high end steel products that make up 32% of our sales, help to secure a level of profit margin that sustained POSCO's operating profit. In battery materials, lithium hydroxide price is 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 challenge and disadvantage.

Operator

In addition, our brine and ore 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 operation have gone into effect without a hitch gives us reason to be proud that our lithium production technology and facilities have arrived production ready at commercial scale. Before I give you give the floor to the Head of IR for a more detailed presentation on our earnings, I'd like to take a brief moment to communicate the strategic alliance struck between POSCO Group and JSW Group, which was released yesterday.

Operator

In your deck, it pertains to Slides 58. 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 5,000,000 ton capacity. The new upstream plant will have fifty-fifty investment from POSCO and JSW Group with plans to focus on premium automotive steel products. We have been proposed 2 potential plant sites that we are currently examining.

Operator

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. This business partnership with JSW Group and our entry into upstream business in India have 3 strategic implications for POSCO Group. First, it is our response to the formation of steel market blocks around the world. Given the geopolitical risks and protectionist trade tendencies, the global steel industry supply chains are grouping into blocks.

Operator

Hence, we must address this shift through localization in key markets. By entering the upstream business in India, we plan to move away from previous business strategies that focused on seeking growth centered on downstream process. Instead, we wish to get to the growth market early and to build presence through upstream business. On Page 7, we provide a brief overview on the Indian steel market. India is one of the fastest steel demand growing economies in the world.

Operator

Per capita steel consumption in India is 90 kilograms, which is a mere 40% of the global average. Moreover, it is a market that is growing with strong push from the Indian government's promotion policies. On the other hand, the market share of the top 5 Indian steel makers is over 60%, signaling an oligopoly. Because the government protects its national mills, profit is relatively strong too. Finally, abundance of iron ore reserves promise ample supply of inexpensive raw materials.

Operator

In 2,009, POSCO set up POSCO Maharashtra or PMH, a downstream plant. We've defined our position in the market as a key automotive steel sheet supplier. As of 2023, our market share in automotive coated steel was 28%, taking joint number 1 market position. Currently, more than 50% of our products are supplied to the auto industry. Because we've already acquired a good number of clients that use premium steel products, we hope that a new upstream facility in India will generate immediate synergy with existing networks and assets in the country.

Operator

And this is the way we want to be able to build a larger market for our products. The second implication is partnership with a formidable local partner. On page of your handout, there's a brief description. JSW Group is ranked number 1 steelmaker in India by production volume. A joint venture with such a strong partner helps to mitigate local risk.

Operator

Therefore, we believe our partner will help us to make our entry into the market faster and more efficient. So entering into an overseas market in a more efficient way helps us to generate more profit wherever we end up. The third implication is in battery materials and renewable energy, We have strategic alignment in these areas for collaboration. JSW is known as a steelmaker. However, they've recently acquired shares of MG Motor India and built a recycling business too.

Operator

These actions signal aggressive investment into EVs. Through JSW Energy, the renewable energy business is expanding too. From these perspectives, we find a great level of strategic alignment with POSCO Group's eco friendly rechargeable battery materials business. Given the growing importance of manufacturing cost competence in the battery materials sector, India is rising in prominence, especially given its growing projections of EVs and therefore all the more important to have a local partner in doing this business. To our investors and shareholders, I want to stress that due to a sluggish market, cost recovery continues to be delayed in both steel and the battery materials businesses.

Operator

We're committed to continuing sound profit management and to see growth trajectories in key businesses. This is how we promise to do our best to surmount the current crises. While we expand in these business areas, we're also committed to simultaneous restructuring of non essential businesses and nonperforming assets. Through these efforts, our long term goal is to enhance capital efficiency. Now I'd like to hand the floor to the Head of IR, who will deliver our Q3 earnings.

Speaker 1

Well, as I'd like to discuss our consolidated results for the Q3. Please go to Page 4 of the presentation deck. Overall, the Q3 ended 8, similar level to 2nd quarter. We recorded KRW 18,321,000,000,000 for the sales and operating income KRW 743,000,000,000. We made a lot of excites, a lot of efforts, but because of rather sluggish performance in the still rechargeable batteries, the initial cost of subsidiaries being reflected, that turned out to be that effect.

Speaker 1

For the Q3, we have sales and operating income for the Q3 at KRW 18,321,000,000,000 and that's EBITDA of KRW 1,075,000,000,000 in the 3rd quarter. And we have now going into the sectoral outcomes. Please go to the Steel side. On the operating profit, that was KRW460 1,000,000,000 and that's down by KRW 331 1,000,000,000 from the previous quarter. Post score posted an improvement of KRW 28,000,000,000 recording KRW438 1,000,000,000, but because of the deterioration in the profitability of Chinese subsidiaries in the Zhangjiang Gang, we have seen the sluggish retail demand in China resulting to the results.

Speaker 1

Infrastructure segment posted operating profit of KRW449 1,000,000,000, up KRW20 1,000,000,000 and profit improved at post COVID international due to high power generation profit. For the future M, because of the lower annual to cathode material sales volume and losses in the cathode material, the profit trend and the POSCO pillar, lithium solution began to reflect its initial cost production entities, including ramp up of the POSCO Filba lithium solution and the completion of the POSCO Argentina. Next, I'd like to share with you the major activities in the Q3. Mr. Chong Seo spoke about the strategy alliance between POSCO and the JAWS Group in India and our successful entry into the Indian market.

Speaker 1

Please go to Page 9 for the completion of the Postgres Antinous brine lithium Phase 1 plant construction. For the Postgres Antenna brine lithium Phase 1, this is upstream and downstream process with a capacity of 25,000 tons of lithium hydroxide. It has been completed recently. Completion ceremony was held in Argentina. And the initial production of 200 tons of lithium hydroxide was successfully completed.

Speaker 1

We are currently going on with the ramp up process. And from November, we'll start the product certification process for the postcode future and battery companies. Next on the option process of the postcode Argentina Phase 2 with a capacity of 25,000 tons, this will be completed in the Q3 next year. And if the downstream process in Guangdong is completed around that time, I think this will happen by the end of next year and we'll have a system of 50,000 tons of salt slate based lithium brine based lithium hydroxide production. The Postcorpival Lithium ProSolutions 1 plant in the Kwangnyong is ahead of its production ramp up scheduled by about 1 quarter and is expected to be completed by the end of this year.

Speaker 1

In the Q3, the cumulative production will be 19 65 tons, and we are stabilizing the production. So we're inching closer to the stage of stable, the mass production. This is internal evaluation. And at the same time, the product validation is nearing completion. And we are pleased to announce that we recently signed a contract to supply 20,000 tons of lithium hydroxide for EVs in 2025, and this will be signed sometime in December of this year.

Speaker 1

For the full scope of future battery companies, we are currently going on the certification procedure, and we believe the additional supply contracts will be added in the first half of next year. By the end of this year, as you know very well, we have a capacity of 21,500 tons, a second plant to be completed. We're working very hard to complete the completion and currently we're going undergoing commissioning and this shows to be completed by December this year. So with this, the hard rock and the brine completed, we believe that we will have to production base of 68,000 tons 89,500 tons by the end of next year. More recently, we have seen the lithium prices coming down below 10,000 tonne levels and by the end of this year and next year, we will have investments for the new plants and the product certification will take a year or so.

Speaker 1

And we are not going to be able to enhance the utilization rate very rapidly. So we have some fixed cost coming in. So it will take time for us to come to the normalized margin level. So we're trying to accumulate the mass production experience and also trying to make sure that we bring efficiency in the production. So we're setting our best efforts to come up with the best results.

Speaker 1

We're also trying to advance the normalization of lithium production, and we're also working to secure team in their assets at the time of declining lithium prices. And as reported by the media, you see that in the Chile Alto and Dina's lithium project is going on. We were included in the shortlist in August and negotiations are currently underway. We believe that by the end of Q1, the final candidate will be selected. And also for the Marikunga salt, the brine based lithium project, we are participating in the bidding process.

Speaker 1

And in addition, we also have like the hard rock based lithium. This is also what the company is considering mainly in Australia and the United States. Secondly, I want to mention that PostgreSQL International has made equity investment in Black Rock Mining and this is going to be 60,000 tons of battery grade flake graphite. Next page, this is about the progress of restructuring program. The company has added 5 more restructuring targets on top of what we announced in July.

Speaker 1

So there will be 155 a total of 55 on the low margin businesses and 70 core assets. We have 21 businesses and assets. We have completed restructuring. This led to freeing up of KRW 625,400,000,000 in cash. And this is at the end of September.

Speaker 1

You'll be very curious what we have sold off. So some of them include heavy oil plant in Papua New Guinea and the regional steel processing center in China. So these are some of the low margin production centers that we have owned in overseas countries. So these are low margin and these are not part of the core future businesses that we have in mind, so we sold them. And for the non core assets, I also want to mention the KB Financial Group has sold over and expressly where we have like a simple minor equity stakes.

Speaker 1

And we also have Pangdangdong Multi Purpose Commercial Building, which is a non core real estate assets that we held. So we sold these assets to secure more cash. And on these points, this relates to the improving the efficiency of our asset management at the group level. And as I've announced before, by the end of 2026, we'll be able to arrive at the target that we have started. So we'll be able to come up with KRW 26,000,000,000,000 in cash and this will be used for future investments and we'll make sure that there is like a stringent control of this management of these assets.

Speaker 1

Next I'd like to talk about the company results. Please go to Page 11. The first up is POSCO. The POSCO's crude steel production in the 2nd quarter turned out to be normalized. It has been reduced a bit and it's been returned to the new levels.

Speaker 1

And that comes after the Pu'an 4 blast furnace completion. This increased by JPY 1,200,000 tons from the previous quarter of JPY 9,230,000,000 to 4,000,000 tons. And correspondingly, our revenue has grown to JPY 9,479 9,000,000,000,000. Although the profit improved due to the effect of lower fixed cost due to the increase in the production volume, so we have seen some improvements. And also, you can see that raw material prices has also dropped, but the sales price, this has reduced by KRW43,000 per ton.

Speaker 1

This is a larger decrease and therefore the mill margin has reduced slightly. And despite the difficulties, we believe that we have seen these sales improve slightly from the Q3. For the Q4, you see that the raw material price is expected decline further quarter on quarter and production sales volumes are expected to increase slightly compared to the 3rd quarter. So in terms of the manufacturing cost, the 4th quarter turns out to be more positive than the 3rd quarter. But we see that we realized the downturn in China continues and there are no concrete signs of recovery.

Speaker 1

So sales environment is expected to be continue to be challenging. The company has compared to other competing companies, we have high proportion long term contracts with the higher value products. And thus, we expect profits in the Q4 to be in line with the Q3. But we are making every effort to secure profits in case the decline in selling prices continue. Please go to Page 12.

Speaker 1

In the overseas steel business, we look at Indonesian bills, the upstream and also these short pressure bills in India and Mexico, they're improving their profitability by increasing the proportion of high margin steel plates. In particular, for the Fusco Master, the Indian Downstream Subsidiary is making structural progress in diversifying sales mix towards a high end alternative steel. And the proportion of alternative steel sales is reaching 52% in terms of the mix. We are looking at structural improvement. However, I want to mention that if you look at the Zhang and the Chinese subsidiaries are looking at lower selling prices caused by deteriorating market conditions.

Speaker 1

And therefore, the overall profit will always still increase decreased quarter on quarter. Next is on the Post Co International. Sales and operating profit increased by 1.2%, respectively, from the previous quarter. We have seen in the industry sector property profit decreased due to a decrease in the cost recovery ratio of the gas fields, but we are able to result lead to a profit in the same level as the previous quarter. On the post Q and A, we look at ongoing crisis in the construction market, so we're purchasing on securing financial stability, including cash flow oriented management.

Speaker 1

We want to maintain this on the profitable level. In the Q3, in line with the group restructuring plan, We sold core non core assets and that led to more than KRW 100,000,000,000 in cash and improving profit by KRW 32,900,000,000. Let's go to PASCO Futuram now. Sales increased slightly from the previous quarter, but if you look at the sluggish business in the angioside, we see that the operating profit fell 64%. In the cathode active material, sales volume increased on quarter on quarter basis, And this is due to strong sales in the high nickel products, but because of the inventory valuation losses, operating profit turned to a loss.

Speaker 1

In the analog active materials due to sluggish sales of the natural graphite, we've seen the overall decline in the profitability. For the Pohang number 4 plaster furnace, because it has been because of the changes incurred there, we see that things have been turned to a normalized level. I think this includes a brief overview of our Q3 earnings. Now we'd like to proceed the Q and A session. Thank you.

Operator

We will begin the Q and A session. The first question is from Hyundai Motor Securities, Mr. Park. This is Park Hyun Woo. I have about 3 questions.

Operator

The first is regarding the market steel market, that is. In automobiles and shipbuilding, what kind of price negotiations are ongoing and how is it going? And there have been some announcements regarding EVs and there are mixed signals. From POSCO Holdings' perspective, looking at the stimulus package that's been released in China, how does that relate to our own steel market? How do you view that?

Operator

The second question is regarding non essential assets and underperforming businesses. These are onetime expenditures that are usually consolidated at the end of the year, and I totally understand why you would want to do that. Is this something we should be expecting this year as well? So on certain onetime expenditures, will we see all of this being consolidated towards the end of the year? And third is something that was mentioned by the CSO.

Operator

So the fact that POSCO is investing in India, I think that's practical and reasonable. However, I do have some questions. You did mention an integrated mill. Is this blast furnace based? Or is this based on hydrogen, still making?

Operator

And I also have a question about the size. It's probably going to be one blast furnace, but it's probably not going to end there. So does it have expandability? And the location of Odisha, there's quite a distance between Odisha and Maharashtra. So if you produce in Odisha and other sheets are produced in PMH, there's quite a distance and transportation that's required.

Operator

So how will you calibrate what gets produced where? And about 20 years ago, I believe you had contemplated building an integrated mill in Odisha, but failed. And I believe there was a lot of opposition from the community and that was part of the reason why you failed. What is different this time? And I believe it was in 2022 with Adani.

Operator

There was an MOU signed to invest $5,000,000,000 into some eco friendly facility. Now that you have held hands with JSW, what happens with Adani? Has that been canceled? Or are you doing both in parallel? And if this is an investment into a blast furnace, I believe POSCO has already announced its carbon neutral strategy.

Operator

If it's blast furnace based, then how does this fare into your carbon neutrality road map? That's all of my questions. So you asked 3 key questions. The first is regarding the steel market. And we will have Mr.

Operator

Hong Yoon Shik from the Head of Marketing Strategy Office. And on the second question, I'd like to ask Mr. Lee Joo Tae, Chief of Corporate Strategy. And on the question regarding the investment in India, we will ask Mr. Chan Sung may, Chief of Steel Business.

Operator

My name is Hong Yoon Shik. 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 was going to have, the prices began to fall again.

Operator

In shipbuilding and Automobile Industries, you asked about the impact in those industries. We have half year contracts with the OEMs. And so when we have these half year contracts, of course, the Q3 and Q4 run on the same prices. But in 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 Q4.

Operator

So that is upcoming. And we are trying to up our price with some of the shipbuilding companies, but we are up against some resistance. Since the Chinese stimulus package, what are some projections that we are making? I think that was part of your question. As mentioned before, since the stimulus package, yes, we did see a huge rebound in prices.

Operator

And rather than thinking that demand was going to follow suit, we did think that there was the prices had already reflected future stimulus packages. And so at some point, the price went above $100 per tonne. But I think thereafter the price began to reflect some disappointment and so it began to fall again. But I don't think it's going to fall too low. A lot of the steel makers in China are already in red ink.

Operator

And the Chinese government is likely to announce another stimulus package in December. And so we believe it's going to hit another rebound pretty soon. 2nd question on non essential assets. That is regarding restructuring. And I think the question was, will all of these costs be consolidated in 1 quarter towards the end of the year?

Operator

In the Q2, during our earnings release, we did release about 120 restructuring projects and our plans to restructure these assets or businesses. But now after some time has transpired in the Q3 in particular, The restructuring that was scheduled is on schedule and proceeding as planned. So some of the divestments as well as sales, In some of these cases, we can generate a profit. In other cases, we may suffer some losses. And that is exactly what happened, but profits outweighed the losses and that's why we turned a general profit.

Operator

In the past, when we sold off our nonperforming assets, yes, we did generate a lot of losses. And so I think a lot of people remember those numbers. And I want to remind you that during this restructuring, we are going to suffer some losses. But according to what we've seen so far and what we plan in the future, there will be more profits than losses. But again, there will be some impairments, but I think they will be overweight by the profits and so the impact is not going to be hugely negative.

Operator

I'd like to respond to the 3rd question regarding hydrogen based steelmaking and blast furnace and which part will be implemented in India. The hydrogen based steelmaking is not yet commercial scale. So of course, we are going to install blast furnace and a shaft method. And this will have to go through discussions with our partner. In the first stage, we will do 5,000,000 tons.

Operator

And what we contemplate at the moment is the first plant site is about 1600 acres. And so yes, there is expandability to Phase 2. In addition to that site, we could be looking at other sites too and that is under consideration. The location of Odisha, there's quite a bit of distance between Odisha and PMH. In Odisha, there are many rolling mills from where we get our supplies.

Operator

So the upstream process, if we place that in Odisha, we will have no shortage of supplies from the local mills. And so keeping our production site here in Odisha, we have plans to go all the way from upstream to downstream. Yes, about 20 years ago, we failed to acquire the land on which we would be able to build the integrated mill. It was not just the acquisition of land, but also mining rights that became the issue at the time. But at this time, yes, we are working with a local partner, so they will take care of the mining rights.

Operator

The MoU with Adani Group, that MoU was signed at the end of 2022. I think it was in the beginning of 2023 that Adani was languishing in the Hindenburg report. And so we could not carry on that partnership. And that's why JSW and Adani will not go in parallel. In India, carbon net zero goal is by 2,070, ours is by 2,050.

Operator

So in India, we intend to follow local rules. For example, if we invest in a blast furnace, There are many technologies that are under development, such as hydrogen mix technology as well as CCS. And so there are many advanced technologies that are being developed by POSCO Group right now that will all be put to the test and applied there. That's how we will try to get to carbon net 0 in India. Thank you.

Operator

I hope that answered your question. We'll go to the next question. The next question is from I'm Securities, Mr. Kim. Please ask your question.

Speaker 1

Good afternoon, ladies and gentlemen. My name is Kim Yoon Sang. I have 3 questions, 2 very short questions. My first question pertains to India. On India, what is the demand situation demand and supply situation, what is the post consumer?

Speaker 1

As you look at the demand growth, I think it could be quite positive. But if you look at the supply side, I think there's a rapid increase in the supply as well. So if you look at India, it may not be like quite like the Chinese market. What about how do you address the concerns you have to India market given the market in demand situation? Secondly, if you look at the overseas penetration, you have given us good explanations about Indian experience.

Speaker 1

What about the United States? China also, the Southeast Asia, there is a lot of overflow of Chinese products. So give us an update on what you're doing in this region as well. And for the AD steel plates for the Hyundai and there's been some investigation for the anti dumping for the low cost to Chinese steel products, what is your position on this Chinese products and how do you intend to respond to that situation? Talk about the demand and supply situations, if you look at this demand, I think it's about 150,000,000 and by 2,030, the government intends to make it to 300,000,000 to 100,000,000 tons or 200,000,000 tons from our forecast depending on where you see it.

Speaker 1

And also I'd like to say that if you look at the demand itself, if you compare to China and India, I don't think there's a substantive increase in the Indian side. There's like a 6% or 7% increase every year. If you look at the past experiences in 2000 or right before 2000, if you look at demand increase in China, there was an increase of 20% to 30% every year. So if you look at the situation and of course there could be concerns about the oversupply, but even if there is an over supply situation, partially that could be oversupplied, but Postcor believes that given the portfolio of our products, we focus on the high end products. So I don't think there will be much of a problem there.

Speaker 1

And for the steel demand, if you look at the increase in steel demand, you see slight decrease in the Chinese side as well, but in India, that's increased by 10,000,000 to 15,000,000 tons every year. And if you look at the demand and supply, I still believe that there is a lot more demand than supply. The second point about the U. S. And Southeast Asia, the upstream strategy for the United States, 2026 or 2027 will be the year that we have been considering the upstream process.

Speaker 1

For the electric furnace, we are continuing to make efforts. That's what I can tell you for now on the United States side. On the 3rd point for the distillate AD, in Southeast Asia, for the upstream, the AD products, PYD in Vietnam is going on pretty well. And I think we're considering further expansion in the future for the Indonesia, 3,000,000 tons. We believe that we need to actively consider expanding in the future Indonesia as well.

Speaker 1

In Indonesia, I don't think we have anything quite concrete right now. We don't have any concrete plan going on for Indonesia right now. On the third point, 4 d steel plate ADs, on how we will respond for that post call, Mr. Do Han Yi is going to respond.

Operator

On steel plate AD filing and what are our responses, I'll give you the answer on that. On steel plates and the antidumping filing, there are inquiries that have been sent out by the Korean government to industries that deal in the same products. And so we will be responding to those inquiries. Our deadline is by mid November, and I think we may be able to get an extension on that. So we will respond to those inquiries.

Operator

And of course, there's a lot of cheap Chinese products that are flooding our markets. Of course, AD filing is a right protected by international law as a means to address unfair trade practices. So key steelmaking economies in an effort to protect their domestic steelmakers often use AD rules as trade remedies. Recently, Chinese and Japanese hot rolled steel sheets are under investigation or subject to AD rulings in the EU, Turkey and Vietnam. And Canada, Mexico, Indonesia, Taiwan, Thailand, Australia and U.

Operator

K, AD rulings are being practiced on HR Steel Sheets. So despite strong protection measures undertaken by steel producing economies, the Korean steel industry is exposed to senseless to imports in an essentially open market, devoid of any protectionist mechanism. Unfair trade practices are flooding the domestic market, and so POSCO to take some action as well. Therefore, we intend to strengthen our monitoring activity against steel imports and to address unfair trade practices. We are actively reviewing diverse means of remedy, including AD filing.

Operator

Thank you. Next question please. Next question is from Yujin Securities, Yi Yujin. Please ask your question. Hello, can you hear me?

Operator

I would also like to ask about 3 questions. First is about the steel market and steel price that where recovery is delayed. I feel there are some investments that are being planned, but the cost seems a little bit high. What are your plans here? And regarding CapEx for your Indian project, can you make some comparisons?

Operator

And regarding PMH, I think you are planning about 40,000,000 tons. What is the feedstock that has been secured for this production volume? I'd like your analysis on that. Silicon solution is my next question. I wonder if you've acquired some good number of clients customers.

Operator

On the CapEx, we will ask Mr. Kim Seung Jun in charge of Finance and IR. On PMH and Feedstock, we will ask Mr. Jansung Lee. And the third question on silicon solution production plans.

Operator

That question will be answered by the Head of Nickel and Next Generation Business team, Mr. Lee Jae Young. So first on how to secure the funding. In India, the investor is POSCO. So POSCO is going to make the investment.

Operator

And our plant capacity is 5,000,000 tons. So it's going to be about 8,000,000,000. But this is a joint investment with a partner, a fifty-fifty investment. So we will be investing maybe about RMB5 1,000,000,000,000. Each year about 4.5 EBITDA should be generated and this is going to happen over a period of 4 to 5 years, not happening all in 1 year.

Operator

So within that EBITDA, I think it's something we can definitely manage and accommodate. In lithium, POSCO Holdings will be making the investment here. This is also not 100% investment from POSCO Holdings. We will have local partners. And so there will be some calibration of how much will be expended.

Operator

If we look at cash reserves, we have about 4.5 in cash reserves. And the convertible bonds that have recently been cashed, that generated about $3,000,000,000,000 as well. So we have sufficient funds looking at our financials. These this CapEx is not a huge burden. EMH, so full hearts and HR products that are supplied to PMH from POSCO, it's about 1,000,000 tons per year.

Operator

If we should make this investment, the hot rolled products will not be removed immediately. It will go through a phased reduction. So about 1,000,000 tons of hot rolled products will over time be removed. And so we will have to find other markets. And downstream capacity is something that we would like to acquire additionally.

Operator

And so that's how we intend to adjust our demand and supply. Let me address silicon solution. Our silicon solution plant will be commissioned next week. So prior to full capacity production, we will have to go through product certification, of course, through domestic refineries as well as Company P in Japan, Company M in Europe and other companies in the U. S.

Operator

We are in negotiations with a number of companies. Our certification samples have been submitted to these companies. And we have also signed MOUs with a certain part of these clients for a certain volume uptake. And so samples have been submitted and progress is being made so that we will be able to get certified as soon as possible. Next question is from DBS Lee Eun Young.

Operator

Please ask your question.

Speaker 1

Thank you for this opportunity. I'd like to ask you a question about your investments in India. You said that it's a fifty-fifty percent, the stake investment. And if you do a joint venture based on fifty-fifty equity, then this may lead to a number of issues, for example, in shareholding rights. And so there could be a possible conflict in the future.

Speaker 1

So we have concerns about that as well, because this is an Indian venture. So do you have any slight call option, any special provisions to protect the shareholders? Do you have anything reflected in the shareholder structure? And JSW, as I understand, has sold 10,000,000 ton of the capacity expansion on stone before it entered into a joint venture with the POSCO. So the JSW has its plan for the capacity expansion.

Speaker 1

And with this investment with the POSCO, it looks like that it has a strategy to arrive at a high end product as well. So I have concerns that they may abuse you in the future. If you think about the 5,000,000 tons on what the production process is going to be, how you intend to produce them, you said that nothing concrete has been finalized yet, but this 5,000,000 tons, is that be targeting purely the Indian market? Is it your is my understanding correct that you are just targeting the India market with the 5,000,000 tons of products? And also I'm concerned about carbon neutrality, based carbon neutrality is not something you implemented just for the POSCO India or POSCO Korea or the United States.

Speaker 1

So it's going to be all consolidated basis and you have to look at the carbon emission level as a whole. I think that's what shareholders were looking for. So if you have this fifty-fifty venture, the outcome is very important, but you said to be thinking about the carbon emissions level. Where would these emissions be calculated? Would it be at the joint venture or is it at the postcode as a whole?

Speaker 1

So I'd like to ask you about the questions on ask you to explain that as well. And you're going to begin lithium production and the lithium prices has come down quite substantively. And if you think about the cost competitiveness, if you about what you have in Argentina, you said that your competitiveness is very high. But if you think about the amortization, depreciation cost and the production cost, all considered, what would be the BP for the post call? You're at the initial stages of production, of course, you can't reach the breakeven point, but let's say the utilization rate rises to 70%, 80% levels.

Speaker 1

Well, where will be the production cost at which we can realize the breakeven point? If you think about these brines and also the hard rocks, what will be the cost structure? I'd like to ask you to explain on that as well. When we make the 50% investment, we may you said that we may enter into some conflicted situations, but we have 50% equity and we have a BOD that is structured with 50% 50% from both sides. I don't think we're going to enter into major conflicting relationship.

Speaker 1

We're trying to secure the site and come up with the access and so it will take us some time for us to achieve at certain levels as a core options. In the future, we will set an acquisitions for that in the future. 10,000,000 ton, I think, trying to secure that on their own site is already done. So if you think about the Odisha site, there could be further an expansion made. So that by 2,080, so this should be risen to 25,000,000 levels.

Speaker 1

So what they are trying to negotiate with us is part of their 25,000,000 that have in their plan. And the joint venture with POSCO is not an integrated steel mill. They want to come up with that high end mill, so that is what's been currently being discussed with the Indian partner. And India has 150,000,000 tons in size in the market size. And the export ratio is relatively very small compared to Indian or the Korean market size.

Speaker 1

So this will be purely an Indian market that we are targeting with this joint venture. With the carbon neutrality, I think we need to be very realistic in our purchase. Of course, they need to be consolidated. We need to make public disclosures, but we need to be really realistic in our purchase. If we make the reduction efforts in India, I think the market will understand our position in looking at the realities of the market situation in India.

Speaker 1

On the lithium side, Mr. Lee, who is responsible for the lithium business, Lee Sangwon is going to On the BP, the breaking point for the salt lake, the brines, I think lithium producers all over the world are suffering because the price of the lithium is less than RMB10 1,000. So even if they do a Salt Lake brine business, they're not making good profits. We're still at the early stages, so I'm not really sure what to say as of now. But compared with our competition competitors, I think the salt lake quality is very high.

Speaker 1

The lithium content is very high and therefore, we are not very concerned about that, but we have made quite a lot of investments. So there could be quite high amortization cost there. But as we enter to full mass production, we believe that I don't think that's going to be a significant difference between what we make and what other competitors do. So I think we can make a good profit with this Salt Lake brine based business. And if you look at the cost difference between the hard rocks and the brines, first as we purchase Salt Lake, we make a massive investment for the hard rocks or the pure bio lithium solutions, we make monthly investments because import from Australia on a monthly basis.

Speaker 1

And therefore, there is like raw material cost, feedstock cost. If you think about the process, the processing, I think there's not going to be a great difference, but the difference comes from the feedstock from the raw materials. And the hard rocks are more costly than the salt lake as of now. Compared to the brine, it's a lot more costly.

Operator

Do we have any other questions? So let me speak. I'd like to thank everyone who participated today. The Q3 2024 earnings release presentation ends now. Thank you very much for your participation.

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Earnings Conference Call
POSCO Q3 2024
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