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Posco, one of many world’s largest steelmakers, has warned {that a} sturdy greenback and weak Korean received are inflating the price of imported uncooked supplies and dragging down profitability, on the identical time the corporate is grappling with subdued metal demand from the worldwide financial slowdown.
The greenback’s surge to a 20-year excessive has raised considerations about depressed international financial development. Regardless of rallying in latest weeks, South Korea’s forex has depreciated almost 10 per cent in opposition to the greenback in 2022. A property market downturn in China, the world’s largest metal market, has additionally weighed on Posco’s earnings.
“The trade charge is having a huge impact on us as we have now to buy uncooked supplies in {dollars},” stated Kim Hag-dong, the corporate’s chief government, throughout an interview on the firm’s sprawling headquarters in Pohang on South Korea’s south-east coast.
“Our margin has been squeezed as vitality costs go up, however we will’t elevate our product costs due to weak market circumstances.”
The working revenue margin of the world’s sixth-largest steelmaker dropped to three.6 per cent within the third quarter of 2022 from 20.3 per cent a yr earlier, hit by decrease metal costs and one-off losses from flood injury at its home plant following a hurricane in September.
“Prior to now, when the trade charges rose, our export competitiveness was boosted. However now rates of interest are additionally rising, so this hampers enterprise actions, slashing demand,” stated Kim. “Larger uncooked materials costs are additionally inflicting concern to us, together with the sluggish financial system.”
The 63-year-old chief is an business veteran who has spent greater than 30 years between the corporate’s two fundamental steelworks and is now in command of main its inexperienced transition.
Kim stated he was apprehensive that international metal demand was not choosing up, predicting a 1 per cent enhance subsequent yr, principally in India and south-east Asia. He anticipated the metal business cycle to get better within the second half of subsequent yr after hitting the underside within the first half.
“We hope that the Chinese language market state of affairs will enhance as lockdowns are more likely to ease now that Xi’s third time period has begun,” he stated. “The Chinese language property market downturn may have a huge impact on us if the market deteriorates, however it’s laborious to foretell how a lot worse the market can be.”
The cautious optimism comes as Posco, South Korea’s largest company emitter of carbon, accelerates its efforts to decarbonise in response to more durable rules and buyer calls for.
Posco turned Asia’s first steelmaker to declare its ambition to go carbon impartial by 2050. It’s working to make use of hydrogen as an alternative of coking coal to soften iron ore and take away oxygen for steelmaking.
Kim stated the usage of inexperienced hydrogen for steelmaking might enhance metal costs by as a lot as 40 per cent.
“I believe low-carbon steelmaking can be potential in the long run,” stated Kim. “However manufacturing prices will rise within the course of, so a consensus ought to be reached from traders and governments to end-use clients like automakers and shipbuilders to share the fee and tasks as a way to make the transition potential.”
Kim stated the inexperienced transition was essential to increase its market share in Europe, the place steelmakers are extra actively growing low-carbon applied sciences to fulfill more durable environmental rules, whereas its US exports are restricted by import quotas.
“We’ve virtually given up hope for US exports however we have to retain our foothold within the European market,” he stated. “If we don’t scale back carbon emissions, we will’t increase into Europe.”
Kim added that Posco wanted to construct its presence within the US for its “many US clients like automakers” as Washington’s regulation in opposition to metal imports is more likely to turn into stronger.
“In an effort to retain our clients, we’re considering of establishing joint ventures there and are contacting many firms for this,” he stated. “It’s getting more durable to export metal to US automakers until we produce it in North America.”
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