POSCO Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2024

There are 2 speakers on the call.

Operator

Good afternoon. Thank you for joining us for the Postco Holdings Earnings Call for Q2 2024. We will have a presentation of Postco Holdings followed by Q and A with the participants. Now we'll begin the POSCO Holdings Earnings Call for Q2 2024.

Speaker 1

Greetings. I'm CSO of POSCO Holdings. My name is Keiseop Jeong. Earlier this month, we hosted events in Seoul, Hong Kong and Singapore for POSCO Group's Rechargeable Battery Materials Business Value Day. Amidst the uncertain business environment, how we plan to continue to grow and to achieve shareholder return was the strategy we shared at these venues.

Speaker 1

The group's new management vision and the buyback and cancellation of treasury stocks comprise the shareholder policy message that was announced. Taking advantage of the market CASM, the rechargeable battery materials business will take firm hold as the 2nd growth engine for the group. This is the strong commitment that we communicated. In this process, investors have offered feedback from multiple perspectives. 1st, on the plan to buy back and cancel treasury stocks.

Speaker 1

We shared that going forward, treasury stocks would be canceled immediately upon buyback. On this principle, many investors mentioned that they heard a more shareholder friendly policy from the Board and the management. Next, on our restructuring plans, investors urge that the impact of restructuring will translate into substantive performance outcome through additional funds that will feed into generating future growth and for shareholder returns. The industry of EV Battery and Materials has soured. During this time, we are closely monitoring demand fluctuations and adjusting the speed of our investments.

Speaker 1

For essential resources, such as lithium, we will not lose out on the opportunity to invest. With this new strategy, the predominant share of investors offer their buy in. Through this communication with shareholders, we firmed up our strategy. In our management activities, we intend to make sure to meet investor expectations with integrity and determination. Despite that only about 2 weeks have passed since our last Value Day event, large scale events that impact the sentiment surrounding the EV industry have happened and they continue to surface.

Speaker 1

Changes are happening in the makeup of the U. S. Presidential election. On the very far end of the EV business value chain, major OEMs are shifting their strategies. These events are expanding the breadth of uncertainty and unpredictability, prodding us to be relentless in our reexamination of our own strategies.

Speaker 1

While we continue to examine and re examine the specifics of our tactics, such as adjusting our investment schedule, the core essence of our strategy, which is to seek growth in the EV battery materials business remains unchanged. We'll move forward undeterred. In steel, we have built the electric smelting furnace demo facility, which is an essential part of the hydrogen based steelmaking technology. The first batch of molten iron was produced in April, which is a clear proof that we are on schedule to be ready to make future low carbon steel. We are not alone in having to deliver on the mandate to offer decarbonized steel.

Speaker 1

Based on the belief that hydrogen based steelmaking should be a national technology interest, we're making efforts to develop this technology with government partnership. Therefore, we are working with Moti, MSIT and other government agencies to seek close consultation. We must also work hard to generate more profit in steel by addressing the lackluster market. Through multiple efforts, we have hit the bottom in Q4, and now we're making a slow but steady recovery. In the rechargeable battery materials business, for facilities that have been constructed or close to completion, we continue to gas the pedal to enhance operation rate for reliable plant operation.

Speaker 1

In our infrastructure business, we have businesses that are pulling the weight for the group by generating stable profits, which is natural gas production. We're on schedule to expand that facility. In particular, the Stage 4 Myanmar gas field development business is the first project where a Korean company is managing a deep sea development project. We'll acquire our own and own our know how gains, which we hope to have application for in future projects. I'll stop here and allow the Head of IR to deliver more detail on our key business activities as well as our Q2 performance.

Operator

Good afternoon. I'd like to share with you our earnings for Q2, which is on Page 4 of the presentation. In Q2 of 2024, revenue increased 2.5 percent from previous quarter to KRW 18.51 trillion and operating profit 29% to KRW 752,000,000,000, driven by higher profits at our sales subsidiary Postco and improved infrastructure performance.

Speaker 1

If you

Operator

look at the EBITDA in Q2, it was KRW 1,740,000,000,000, up by KRW 201,000,000,000. CapEx invested amounted to KRW 2,600,000,000,000 on a consolidated basis. Despite the continued investment with lowering working capital and sell off of non core assets, net borrowings increased by KRW115 billion from the previous quarter end, resulting in a net debt to equity ratio of 15.9%, down 0.4 percentage point from Q1. Next performance by key business segments. OP of the steel business went from KRW 339 1,000,000,000 in Q1 to KRW497 1,000,000,000 in Q2, up KRW150 1,000,000,000.

Operator

Fusco improved by KRW123 1,000,000,000 to record KRW418 1,000,000,000. And as sales of high margin products like automotive steel plates increased at its rolling mills and processing centers in Mexico, Thailand and Turkey, overseas steel profits also improved. The business infrastructure business went up KRW 89 billion from Q1 to post KRW429 billion. Recertification of Phase III, IV reserves in Myanmar's gas field and higher selling prices resulted in improved energy profits. Rechargeable battery materials posted a loss of KRW 28,000,000,000.

Operator

Postco Future MS profit narrowed due to initial start up costs and inventory valuation losses for artificial graphite, while expenses continued to be incurred for projects in its final construction phase, including ramp up and so forth, including the lithium business in Postco, Argentina. Next, I'd like to briefly highlight key business activities by segment in Q2 of 2024. First is Hyrax. The Hyrax technology under development was designated as a national strategic technology in January this year and was selected for a pre feasibility study by the Ministry of Trade Industry Energy in March. In May, the project to develop raw materials for hybrids was selected as a global R and D flagship project by the Ministry of Science and ICT.

Operator

So we're promoting the technology development in earnest aligned with national R and D demo program. In April, the 1st batch of molten iron from electric smelting furnace or ESF, a part of the high risk facility was produced. Leveraging the experience of operating 2 of the world's largest ESF at its subsidiary, SNNC, POSECO completed the production capacity of achieving a maximum molten iron production of 1 tonne per hour over a 7 month period. So with this initial output from the test facility, we can say that Postco has officially begun preparing for the demo of high risk technology. Next is Page 6, highlighting the progress of lithium and nickel production.

Operator

COSCO PIVARO Lithium solution, which produces lithium hydroxide from ore, achieved a daily plant operation rate of up to 76% in June. And leveraging the experience from operating the demo plant, efforts are being made to shorten the ramp up period and obtain certification. Plant 1 is targeting full operation by February next year and Plant 2 by September next year. Pusco Argentina, which is based on brine, completed the construction of Phase 1 as scheduled this month. And to train operations workers and stabilize the facility early, the operational know how from Posco Popular Lithium solution in Pyongyang is being utilized, targeting full scale operation by April next year.

Operator

As for recycling subsidiary, Posco HY Clean Metal, following plant completion in July last year, achieved 100% qualified product rate as of January this year and a 92% plant operation rate of June. So you can say that currently, quality certification is underway with PESCO Future M, local cathode material, electrolyte manufacturers. The nickel business involves smelting and refining operation with a capacity of about 20,000 tonnes that goes from SNNC to PESCO. The refinery plants successfully completed the trial run and shipments are expected to begin in Q3. Indonesia nickel project, it reached 69% construction progress by the end of Q2

Speaker 1

and is on track for completion by Q2 of

Operator

next year. Next is a completion by Q2 of next year. Next is the natural gas upstream expansion. The development of the Myanmar Offshore Gas Field Stage 3 has been completed and finally began commercial production in April. Also, the Stage 4 expansion is underway.

Operator

This year, the main construction began in July. And once drilling starts in January 2026, we expect full scale gas production to begin in July 2027. The Stage 4 is the 1st deep sea development project to be carried out by a Korean company as the main operator, which is different from other stages, which we believe is significant in terms of enhancing and internalizing our capabilities in natural gas upstream business. If you look on the right, in June of this year, in Australia, Senex obtained final approval, and this is a very good news. So it obtained final approval from the Australian Federal Government for its project to truck pull production capacity.

Operator

So with this approval, development is expected to accelerate and new contracts for the increased gas production have also been signed. Senex in Australia plans to secure an annual production capacity of 1,000,000 tonnes by 2026 by progressively ramping up production. Lastly, let me update you on the ESG matters. If you go to our website, there is a sustainability management report that was published at the end of June. So the report includes climate change response strategies and measures to address physical and transitional risks required by global disclosure standards for major operating companies with high carbon emissions like PESCO, PESCO International, PESCO Future M.

Operator

And not only that, we have made efforts to transparently and comprehensively disclose that as a major controversies surrounding the group, and we expanded the scope of ESG data consolidation to include 10 Korean and major overseas group entities. So we have made such improvements. And with regards to the ESG direction and performance of Postcode Group, please refer to this report. Our efforts to enhance ESG information disclosure have been recognized by external agencies. We're seeing an uptick in our ratings.

Operator

So as a result, in April, we obtained MSCI ESG rating of A, enabling us to achieve the highest levels in various domestic and international ESG evaluations. So if you have any inquiries, please let us know, and we'll get back to you.

Speaker 1

Next. I would like to share

Operator

with you in detail our business performance by key areas. COSCO's crude steel output was significantly affected by the refurbishment of the Powang Blast Furnace 4, leading to a decrease of 650,000 tons of Q o Q, recording a total of 8,000,000 tons. Consequently, product sales volume also fell and the revenue also dropped to KRW 9,270,000,000,000. Despite the output cut, usually when the output is cut, the fixed cost goes up. But the March operating profit improved.

Operator

Due to the rise in product sales prices and the decline in raw materials input costs. So the operating profit increased by KRW 123,000,000,000 Q on Q, totaling KRW 418,000,000,000. So you can see that if you break down the increase, the unit price hike and FX impact contributed KRW 15,000 per tonne and the changes in product composition also accounted for KRW 4,000 per tonne. And as for the raw material cost, it went slightly down. So you can say that the raw materials cost dropped and it was covered by the sales price increase.

Operator

Now if you look at the Q3, the sales environment for Q3 and also the prices, all of these environments for Q3 appear to be challenging yet. There is a completion of the blast furnace and downstream refurbishment, which is expected to restore production levels to at least that of the Q1. And second, the continued decline in the cost of major raw materials is anticipated to lower input costs in the Q3. So if we are to consider all of these different factors, we are cautious really optimistic about achieving further profit improvement in Q3 compared to Q2. Now let's look at Page 10.

Operator

As for the overseas steel business, there's been an influx of cheap imports in the East and Southeast Asia that has significantly impacted our operations. So our major integrated mill subsidiaries, PTKP in Indonesia and PYB9 in Vietnam, recorded about a 6% decrease in sales that's turning into the red. And as for the Maastra in India, it saw a 3% decrease in sales as well. But the profits actually increased because there was an increasing sales of high margin products like automotive sales sheets at the rolling mills and processing centers in Mexico, Thailand and Turkey. So the overall profit from overseas sales has improved.

Operator

Now PESCO International. Revenue fell by about 7% QoQ, but OP rose by 32%. In the Energy sector, the E and P business saw an increase in operating profit due to the effect of lower depreciation costs from the recertification of gas flow reserves and increase in the cost recovery ratio. Meanwhile, for the power generation, as gas power plants enter the off season, so it's due to the seasonal factor, operating profits fell. The trading business for major materials like steel generated stable profits, thanks to strong sales of high tensile steel bound for Europe and Americas and green industry related products.

Operator

Next is PESCO E and C. The overall construction sector is not doing very well, but through rigorous management, both revenue and OP have been stably maintained, and we have secured a sufficient cash reserves, and you are seeing also that we have sufficient cash reserves of KRW 1,200,000,000,000 to manage risk and operating by conducting monthly reviews of all of our projects. Now let's look at Postco Future M. Its revenue and operating profit decreased by 20% 92%, respectively, Q on Q. As for the cathode materials, if we exclude the inventory valuation loss, you can see that the situation has improved.

Operator

So the low operating rate of N65 production line led to a decline in sales volume, although sales volume and margins for high nickel products increased. And as for the anode materials, revenue and profits from natural graphite remained similar to the previous quarter, but the initial operation cost of artificial graphite were accounted for shifting to a loss. So this concludes the brief overview of PASCO Holdings Q2 earnings. We'll now proceed to the Q and A session. Thank you.

Speaker 1

We will begin the Q and A. The first question is from Hyundai Motor Company. His name is Park. Thank you for this opportunity to pose a question. I have three questions.

Speaker 1

The first is about the steel market situation. So you mentioned that you had hit rock bottom in terms of the global steel market. But how do you expect to see the steel business performing for POSCO? And how do you see the customers behaving in the future? In Europe, CSPDD was passed as a law in Europe.

Speaker 1

So the requirements for carbon neutrality has become more intense. So what are the impacts for us and what kind of countermeasures are you preparing? The third question is at the EV Battery Materials Value Day, we heard about some of your strategies going forward. So first of all, Hyrax development, of course, it needs to succeed. But there are some other things that you are planning in parallel, and I think this is a positive development.

Speaker 1

But Hyrax is happening in Korea, while in the United States and in India, you're planning to take some upstream processes. So some of the upstream processes seem to be happening overseas. If you have more specifics on this, I would like to hear more about that. And something that is of concern to all of us is when will green product demand become more readily realized? Because that timing has to come in sync with when we are able to offer those green products.

Speaker 1

If they are out of sync, then the opportunity to earn from the green premium price to be able to put that back into our development cost, that needs to offset each other. But I'm not so sure that these timelines are going to be in sync. Looking at some of the projections, the demo plant will be completed in 2027 and then commercialization begins in 2,030. And after that point, that's when some of the products will be rolling off the plant. But some of the EV plants have been pushed out to 2,035.

Speaker 1

So of course, these are mid to long term goals, but these schedules don't seem to be aligning to be thinking. So what are your thoughts on how to align these time lines and schedules? Thank you. So on the question about the steel market, I would like to ask the Marketing Strategy Chief of POSCO to respond, Mr. Hong.

Speaker 1

And then the second question about the supply chain and Europe, we will have Mr. Henry Do, who is the Head of ITA at POSCO respond. And POSCO's development strategies and schedules, we will ask Ms. Kim Hee, Head of Carbon Neutrality Strategy at POSCO Holdings. My name is Hung.

Speaker 1

I'm in charge of marketing strategy. In construction and many other industries, we are seeing a slowdown and some of the iron ore and coal prices are also falling and that's why the market is slow. Because some of these stringent measures are becoming more prolonged, there are projections that trade issues will become more intense and that's why we think the market is going to continue to post challenges. But there are chances of the interest rates coming down in the United States and then some of the sealed policies will become more concrete. So these are some of the positive aspects that we're looking forward to and these are all going into our strategies.

Speaker 1

So to speak briefly about our strategy for automotive companies, of course, there are some differences between companies, but because our contracts are based on their EV rollout plan, We do believe that there's going to be a slight increase in some areas and some slight declines in other areas. Looking at shipbuilding, looking at both the demand and supply side, there are some differences in opinions. And so I think we need to watch this a little bit further and take a little more time to devise strategies there. In home electronics as well as other markets, we are in negotiations about price for the Q3. But we believe that price will not budge too much from the current situation.

Speaker 1

Thank you. I'm in charge of ITA. I'd like to give you my thoughts about the European market. CSPDD was passed in May of 2024 and it went into effect as of 25th July 2024. So it went through many stages and this has now finally gone into effect and the full breadth of this policy will become evident in 2027.

Speaker 1

So it will have broad impacts on many supply chains. First, I'd like to explain a little bit about this policy. Some of the supply chains will be negatively impacted and some of the processing systems, they will have to be offset by getting buy in from our shareholders. And so we will have to disclose a lot more. How are we preparing as a group?

Speaker 1

From 2027, we will begin disclosure. And we will also revise some of our practices. And to do that, we will be conducting some due diligence in our own sites. France and Germany are performing their due diligence now. So with BMW and Volkswagen, we will be renegotiating some of our contracts with them.

Speaker 1

And so our ESG principles and policies will become part of the assessment. In October 2022, Responsible Steel was a badge that we earned as an exemplary steelmaking company. So this is a start in the right direction of our certification as an exemplary steelmaker. And so through many internal controls as well as improvements, we will address all of these policies, global trade policies that are coming to fore. Thank you.

Speaker 1

My response to number 3 question number 3 is, not only Hyrax, but also we have decided to use the shaft method as an option as well. And HBI, a much more eco friendly material, will be considered as well, especially from Australia and from the Middle East because they have a lot of renewable energy offerings. We will be considering all of those and evaluating what we need to do going forward. On the timing of green steel offers, rather than wanting 100% green steel, what customers want is decarbonize steel. That's what they want by 2,030.

Speaker 1

Major customers such as automotive OEMs as well as energy companies, These are our key clients. What they want is basically what we can offer. So we are negotiating price at the moment for various clients in Europe because premium pricing is possible. We are in the process of creating a green premium system.

Operator

Moving on to the next question. Next question will be from Kim Yoon Song of High Investment Securities. Yes, I am Kim Yoon Song. I would like to ask you three questions. First is regarding the East Asia.

Operator

So there is a rising concern. There's a massive export coming from China, and it's very difficult increasingly to export to Europe, so and to Southeast Asia. So in the mid to long term, what are your plans is my first question. And as for this year's still profits or still revenue, I would like to know if you have any guidance to give us. And Nippon still is also seeing some changes, and there is a high likely chance that Trump will be elected in the United States.

Operator

So there is this changing dynamic. So with regards to the Americas, I would like to know what kind of steel strategy or steel business strategy you have vis a vis the Americas? And the third question is, recently, when it comes to IRA, there is also an expanding trend in Australia as well where there is a decreased investment in the nickel as well. So when it comes to the nickel prices, I would like to know your outlook. And there is nickel prices going down and there are lots of like restructuring of steel companies going on in China regarding the stainless steel.

Operator

So I would like to know your outlook on stainless steel. So regarding the three questions, I think that it can be addressed by Hong Yoon Shik, Head of Marketing Strategy Office. Yes, so that's a very difficult question to answer. So yes, the Southeast Asia market situation is challenging, it's becoming very difficult to export to Europe. And also, it will be very difficult in the future to sell like Chinese sales, maybe there's going to be a shift taking place towards Southeast Asia.

Operator

But when it comes to Southeast Asia, there's a lots of trade barrier issues and the prices are already very low. So it is very there is a formation of prices that are under the unit prices of China. So there are limitations for additional overflow in Southeast Asia. But we believe that there is going to be a volume coming to South Korea that will progressively increase. And in the future, we believe there is going to be additional volume coming to Korea.

Operator

So we are taking many active measures to address the unfair trading. Now regarding the second question about the American region and the reelection chances of Trump, we're very cautious to confirm that yet. But as for the U. S, there are lots of trade barriers that are very high. And we believe that we are limiting our direct supplies to the U.

Operator

S. Or direct sales to U. S. So we are not very much directly impacted by the U. S.

Operator

So we're leveraging like Mexico and other countries to promote our sales in that region. And when it comes to the increasing trade barriers for the Mexico that was implemented by the U. S, there is a high chance that there will be more tariff imposed on Mexican scale still, but our still going to the U. S. Through Mexico is not very high.

Operator

And when it comes to the supplies that are directly provided in Mexico, they're not subject to the regulations. So I think that will have a minimal impact on PESCO Holding PESCO. But if Trump is reelected, of course, it's going to have an impact on the exports, and we have to be very preemptive in addressing the import related risk as well. And we will promote organic collaboration with the

Speaker 1

overseas entities so that we can collectively

Operator

respond to trade risk coming from the U. S. And stainless output or nickel prices, it is very difficult to predict or forecast the prices. So nickel prices has gone under US16000 dollars and the nickel stock or inventory is more than 30 months inventory turnover is more than 30 months. So we believe that their prices will not go lower.

Operator

But in the first half, the stainless prices were improved, but we believe that it will be lowered slightly and nickel prices will stabilize around 16,000. In Q3, it's not going to be that good, but we believe that the nickel prices or the stocks will be used and the stainless prices will improve in Q4. I am in charge of the nickel operations. So I would like to answer a question about the IRAs. As for the company A and B in Australia shut down their businesses and there's only a company M that is in operation.

Operator

So regarding the nickel sources related with RNA is very limited. And yet, when it comes to Indonesia, Chinese players are engaged in a lot of projects, especially Haimara. Looking at Haimara alone, there are ongoing or project and nickel projects that exceed 1,000,000 ton. So there are upsides regarding to RIA, but when it comes to supply, nickel prices increase will be quite limited.

Speaker 1

I hope that answered your questions. We'll wait for the next question. Next is from Yu Jin Securities, Ms. Yu Jin. Please proceed.

Speaker 1

My name is Yi Jin from Yu Jin Securities. I have a few questions. First of all, EV demand industry is slowing, and I'd like to know how you're addressing the impact in steel. China has some energy related regulations, and I'd like to know how you're addressing that. Another question on nickel.

Speaker 1

So you spoke about IRA premium. Indonesia and the United States, just like Japan, I think are being considered as FTA partners. So I'd like to know what kind of risk we may have. And in the United States, I believe there are 2 nickel companies that are being built out. How will they impact us, if any?

Speaker 1

And finally, about iron ore and coking coal, do you have any investment plans for coking coal? Thank you for this opportunity. On the EV market slowdown, let me address that question. Recently, whether it's Tesla, Volkswagen, GM or Ford, they have delayed some of their timelines, investment timelines. And even Ultium Chem recently has been impacted and they have announced a slowdown.

Speaker 1

Whether it's cathodes or anos, when we build new plants, we make sure that we have customer orders. Same is true for our lithium plants and nickel plants. So of course, there are concerns about the market slowdown, but because our plants are based on customer orders and we do not expand our facilities unless there are additional orders, we're not as concerned. But there is an EV market slowdown and because of that, asset prices are falling. And so we think this is an important opportunity for us to acquire new blue chip assets.

Speaker 1

For next generation battery materials, we want to be better prepared. On the second question about steel in China and energy efficiency rules that have come into play. In May, the Chinese government announced its decarbonization strategy. So this was supposed to be a 14 phase 5 year plan, but 3 years have transpired. So between next year and the year after that, they have to come up with something more specific.

Speaker 1

Per GDP, they need to be able to calculate how much energy has been saved. And carbon emissions reduction also fares into this equation, and that's why they announced some of those goals. So the Chinese government in the past, when it came to environmental regulations, they have announced many policies and plans, and I think this is part of that, especially in steel, they've talked about adjusting their steel production capacity In regions where they are unable to meet carbon emissions reduction targets, they will limit facilities. And in restructuring steelmakers, they want to be able to increase the ratio of electric furnaces. So about 53,000,000 tons of carbon dioxide emissions reduction is what they're targeting for next year.

Speaker 1

But how realizable is this? If we talk about 53,000,000 tons of CO2 and comparing that to the production volume of crude steel, it equates to about 10,000,000 tons of crude steel. So in a way, because they have adjusted their production capacity and maybe reduced their production capacity by about 10,000,000 tons, perhaps this is realized through that reduced capacity. But how much possible how feasible is this without production capacity adjustment? I don't think that's big.

Speaker 1

So looking at the current market situation, I think we have to continue to look at what will happen in the Chinese market. I think they will continue to try and reduce emissions, but what's more important is to look at what kind of products are leaving

Operator

the shores of China and what kind of

Speaker 1

inexpensive, cheaper steel products will be coming into the Korean market and is signed, then I think we can trade more volume. But the big players in the Indonesian market is China. And so this has to be exhausted first before it can have any positive impact on us. A lot of the projects that are going on in Indonesia, it's very hard to find one that is not owned by China. So there may be Vale and then there might be Washing, which is a Japanese project.

Speaker 1

Vale does about 30,000 tons. Most of it is first metal. And so very little of that is used for our battery material and most of this enters the Chinese market as metal. So even if FTA signed

Operator

with

Speaker 1

Indonesia, is the volume of nickel that is FEOC waived that may not be a huge amount of volume. There is a partner we're working with and nickel, they produce a lot of nickel sulfides, and they are experiencing a lot of difficulty acquiring material that is IRA compliant. So conclusively, I think we can say that IRA compliant nickel is very difficult to come by and there are only a few companies that are remaining and production volume is very limited. I hope this answers your question. On iron ore and coal investments, so to achieve carbon neutrality, we need certain types of iron ore and coal.

Speaker 1

And so we are working continuously to acquire this through Roy Hill. We already have reliable supply, and most of it is based on hematite. On HBI project linked plans, DRI pellets and investments for that project is continuously under investigation. For coking coal, because we foresee a shortage in high grade hard coking coal, we are looking for opportunities for hard coking coal high grade hard coking coal. And for the time being, blast furnaces need to continue to operate, but we need to be able to reduce the carbon that is emitted from these furnaces and that's why we need decarbonization technologies.

Speaker 1

And to make that happen, we need premium grade coking coal and that's why we need to acquire more hard coking coal. However, there are ESG issues, and we need to be able to trust our partners. So we are examining investments on those that are aligned to our EHG strategy only.

Operator

Next question is Yeon Soo from Yuan Ta Securities. Hello, I am Yeon Soo from Yuan Ta Securities. I would like to ask you two questions. First is, I read that Hyundai Steel has filed an antidumping complaint against China. That's what I read in the morning in the newspaper.

Operator

So when it comes to this filing the antidumping complaint, I would like to know if there are some prior negotiations that take place between the different entities and negotiating parties. And I would like to know if POSECO actually discussed with Hyundai Steel not to file a complaint. I would like to know the process that is taking place, not only for the steel plate, but as for the hot rolled and low priced steel, I would like to know your plans when it comes to antidumping issues. So I'd like to know what kind of strategies that you have. And second is in the beginning of July, the Chairman during the tunnel meeting said that the steel and the secondary battery materials will be important business portfolio, but he also mentioned about the new growth news businesses, so that he plans to promote these new industries or for new materials.

Operator

So I don't really understand exact meaning of the new materials or the advanced materials. So can you elaborate more on the definition of new or advanced materials? Yes. Regarding the two questions, the first question will be addressed by Do Han Lee, who is the Head of the International Trade Affairs Office regarding the steel plate antidumping. And regarding the advanced materials, it will be by Lee Joo Tae, Head of the Business Strategy.

Operator

Yes. Regarding the steel plate and also the Hyundai's complaint, yes, so of course, we don't we discuss about these matters among different countries. And regarding the response to the response to the steel plate imports, yes, regarding the anti dumping complaint, it was addressed in the media and it was solely based on the Hyundai Steel decision. And as for ourselves, and there's going to be also a government response to that matter. So we at POSECO will also give our opinion to the government later on.

Operator

Regarding the new materials, I would like to address your question. So during the panel meeting, our Chairman, as you mentioned, mentioned about how to promote the new materials and PESCO is trying to enhance competitiveness in steelmaking and also further develop the EV Materials business and that have been the main pillars of our business operations. So the business portfolio that we promote or seek as it's outlined in our vision is to open up the future with materials. And when it comes to materials, there's, of course, the steel and the EV battery materials. But other than these, we can also consider other materials that are somehow associated with these fields areas.

Operator

So that was just his comment during the tunnel meeting. So other than the steel and the EV materials, we are currently exploring what kind of other materials can create synergies and what kind of materials can be established as a true business domain of PESCO. And in the latter half of this year, we will review these potential domains to make a decision as to what kind of domains we should enter going forward. The review is currently underway, and I cannot elaborate on the specific matters. But mostly, as you saw in the steel and the EV materials, the new materials or the advanced materials will be related with our existing business operations.

Operator

So I can largely name like advanced materials related with mobility or related with the green energy and green infrastructure. It may sound a little bit abstract, but we would like to focus exploring new materials in these areas so that they can become our main domains of business. Thank you.

Speaker 1

Next question? Park Yoo Shin from HSBC. I have two questions. First is about CapEx. So how much of it has been administered this year?

Speaker 1

And are there any adjustments based on the guidance that was released earlier? And updates on some next year CapEx plans as well? And next, you mentioned during Value Day that about some of the cash reserves. And so based on the cash reserves that you intend to make available, how does CapEx change? Next is on lithium.

Speaker 1

We the market is flooded, so there's oversupply and that's why the price is falling. Of course, there are various variables, but when do you intend to meet BEP? Thank you. So question about CapEx and investment. Let me address that portion.

Speaker 1

This year, what we're planning is for investment that is, is in consideration of the market CASM as well as the steel market outlook because the situation is much more depressed than we had originally projected, our investment plans are also being

Operator

reduced.

Speaker 1

So we have reduced our original CapEx by about KRW 200,000,000 and about JPY 100,000,000,000 has already been executed. Infrastructure had about 0.5%, EV battery materials received more than 30 some percent. And so we rarely execute as much CapEx as we planned. They are usually a little bit shy of the plan. And so we believe that is how it will proceed this year as well.

Speaker 1

For next year, we don't have a business plan for next year yet. That will come in about September, October timeframe, and that's when we will start to read into some specifics. But for steel, infrastructure and EV battery materials, some of the investments that we have already planned, of course, there will be small adjustments, but they will move forward undeterred. So based on this year's original plan, we have upped that a little bit. So they have increased a little bit.

Speaker 1

About KRW10 1,000,000,000,000 is what we believe will be executed next year. And some of the cash that will become available through restructuring, what we intend to do with that? Yes. Through our value date events, we explained some of what we plan to do. First of all, shareholder return is what we will expend some of that for.

Speaker 1

And most of the available cash will, of course, go into investment and some of the investments that we're making are not small, whether it's EV battery materials or other growth businesses, and that includes steel. So whatever other growth businesses that we believe require extra investments, additional investments. 2nd question, I'd like to address that lithium prices, as you all know, especially hard rock lithium prices, is determined by the hard rock itself. So that's why it's very challenging to answer this question. Lithium prices, we believe, have hit rock bottom.

Speaker 1

That's what we believe. And of course, there are various different perspectives about when this will begin to rebound. Some people look out to 2028, others pull it into 2026. So BEP is when price will recover. But one positive point is Argentina as well as PPLS in Argentina, they have each entered ramp up stage and production volume is incremental.

Speaker 1

And while the prices stay low, we want to be able to firm up our facility and to incrementally increase operation rate and to certify our products. So we are kind of waiting for prices to rebound so that we can pull that into higher gear.

Operator

Next question please. Next question is from Park Kwang nee of Shinhan Investment Securities. Hello. I am Park Kwang nee from Shinhan Investment Securities. I have a question about the iron ore industry.

Operator

So in the latter half, we see that the sales will go up. But what is your sales outlook for the latter half of this year? And when it comes to the steel prices, it's sort of recovering, but do you believe that the profits will be on par with the increasing profits in the second half? So I would like to know what will be the outlook for the latter half. And during the value day, you mentioned about the restructuring of the non core assets.

Operator

And I would like to know in the process of restructuring these assets, there could be some losses that could be generated and it could actually lead to increased volatility in the short term. Is that also of your concern? Regarding the steel business, in the second half, the overall sales and operating profit outlook, I think that was the gist of the question. So I think that we'll be able to see an increasing increase of about 1,000,000 ton of sales in the second half because there's been a restructuring of BF, and we are going to expand a high profit or high margin products in the second half as well. So we believe that will lead to reduced fixed cost and increasing sales prices, so that will contribute greatly to increasing the overall profits.

Operator

But in Q3, the global steel prices will go down and the overall raw materials prices are declining. So we believe that the steel prices will continue to go down in Q3 as well. As I mentioned before, in Q4, there is a production cut or output cut scheduled by China. So there is a high chance also that the prices could go up. But we believe that in Q3, the price will go down and slightly go up in Q4.

Operator

But as for the mill margins, there is a reduced fixed cost and also compared to the steel prices cut, the raw materials prices will go much down. So we believe that will lead to increased profits or slight increase of profits. So the losses that could be incurred during the restructuring process was regarding the second question. So yes, 120 assets will be restructured if they are not aligned with our strategy. We will go ahead with this progressively.

Operator

So this year as well as next year, and we will sell up about restructure about 97% of the assets by 2027. So as we restructure our non core assets, so there could be like underperforming assets included as well. So of course, there could be losses temporarily incurred. However, the temporary sell off losses could be spread out evenly across over different years. And in that process, there will be cash generated.

Operator

And every year, the translated earnings will also improve. So they will be accounted for on an accumulated basis. So in the short term, we'll be able to fully cover their losses. So in the mid to long term, we'll be able to implement this restructuring well. So each one year, these losses will not be accounted for, for one specific year.

Operator

So it's not going to have a huge impact on their earnings is what we believe. And to add some comments, when it comes to operating profit, once the restructuring is complete, the losses will go to profits, shift to profits. And the losses that you're talking about probably is about some of the operating profit losses that could happen on the balance sheet. So is there additional question?

Speaker 1

No other questions have come up. I believe all the questions have been asked. I'd like to wrap this up. I'd like to thank everyone for participating. And I hereby close the Q2 earnings release reporting session.

Speaker 1

Thank you very much.

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Earnings Conference Call
POSCO Q2 2024
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