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Posco, one of many world’s largest steelmakers, has warned {that a} sturdy greenback and weak Korean gained are inflating the price of imported uncooked supplies and dragging down profitability, on the similar 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 issues about depressed world financial progress. Regardless of rallying in latest weeks, South Korea’s forex has depreciated practically 10 per cent towards 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 price is having a big effect on us as we have now to buy uncooked supplies in {dollars},” mentioned Kim Hag-dong, the corporate’s chief govt, throughout an interview on the firm’s sprawling headquarters in Pohang on South Korea’s south-east coast.
“Our margin has been squeezed as power costs go up, however we are able to’t increase our product costs due to weak market situations.”
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 harm 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,” mentioned Kim. “Larger uncooked materials costs are additionally inflicting concern to us, together with the sluggish economic system.”
The 63-year-old chief is an business veteran who has spent greater than 30 years between the corporate’s two foremost steelworks and is now accountable for main its inexperienced transition.
Kim mentioned he was apprehensive that world metal demand was not choosing up, predicting a 1 per cent improve 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 prone to ease now that Xi’s third time period has begun,” he mentioned. “The Chinese language property market downturn may have a big effect on us if the market deteriorates, however it’s laborious to foretell how a lot worse the market might be.”
The cautious optimism comes as Posco, South Korea’s largest company emitter of carbon, accelerates its efforts to decarbonise in response to harder laws 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 mentioned the usage of inexperienced hydrogen for steelmaking might improve metal costs by as a lot as 40 per cent.
“I feel low-carbon steelmaking might be doable in the long run,” mentioned Kim. “However manufacturing prices will rise within the course of, so a consensus ought to be reached from buyers and governments to end-use clients like automakers and shipbuilders to share the fee and tasks as a way to make the transition doable.”
Kim mentioned the inexperienced transition was essential to broaden its market share in Europe, the place steelmakers are extra actively growing low-carbon applied sciences to satisfy harder environmental laws, 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 mentioned. “If we don’t scale back carbon emissions, we are able to’t broaden 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 towards metal imports is prone to turn out to be stronger.
“So as to retain our clients, we’re pondering of organising joint ventures there and are contacting many firms for this,” he mentioned. “It’s getting more durable to export metal to US automakers except we produce it in North America.”
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