POSCO Holdings Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• HyREX Technology: Designated as a national strategic technology in January 2024, selected for a prefeasibility study by the Ministry of Trade Industry Energy in March, and raw material development project selected as a global R&D flagship project by the Ministry of Science and ICT in May. First batch of molten iron produced from electric smelting furnace (part of HyREX facility) in April, indicating start of HyREX technology demo preparation.
• Lithium and Nickel Production: POSCO Pilbara Lithium Solutions achieved a daily plant operation rate of up to 76% in June, targeting full operation of Plant 1 by February 2025 and Plant 2 by September 2025. POSCO Argentina Phase I construction completed, targeting full-scale operation by April 2025. Nickel refinery completed trial run, shipments expected in Q3; Indonesia nickel project at 69% construction progress by end of Q2.
• Natural Gas Upstream: Myanmar offshore gas field Stage 3 in commercial production since April, Stage 4 expansion underway with main construction started in July 2024, expected full-scale gas production by July 2027. Senex in Australia obtained final approval for tripling production capacity, expected to accelerate development.
• ESG Matters: Sustainability Management Report published in June, MSCI ESG rating upgraded to A in April, reflecting enhanced ESG disclosures and evaluations.

Segment Performance

• Steel Business: Operating profit (OP) of the steel business increased from KRW 339 billion in Q1 to KRW 497 billion in Q2, up KRW 150 billion. POSCO's crude steel output decreased by 650,000 tonnes Q-o-Q to 8 million tonnes, but operating profit improved due to higher product sales prices and lower raw materials input costs. Overseas steel profits also improved due to increased sales of high-margin products like automotive steel plates in Mexico, Thailand, and Turkey.
• Infrastructure Business: OP went up KRW 89 billion from Q1 to KRW 429 billion, driven by recertification of Phase 3, 4 reserves in Myanmar's gas field and higher selling prices.
• Rechargeable Battery Materials: Posted a loss of KRW 28 billion. POSCO Future M's profit narrowed due to initial start-up costs and inventory valuation losses for artificial graphite, while expenses continued for projects in final construction phase including the lithium business in POSCO, Argentina.

Guidance

• CapEx Adjustments: Reduced CapEx by KRW 200 billion in 2024 due to market conditions, with investments in steel, infrastructure, and EV battery materials adjusted. Next year's CapEx plans to be finalized in Q3/Q4.
• Lithium Projects: Targeting full operation of lithium plants as scheduled, monitoring break-even point (BEP) for lithium projects while acknowledging market price fluctuations.

Risks

• EV Industry Uncertainty: Changes in U.S. presidential election and OEM strategies expand uncertainty in the EV business value chain.
• Steel Market Challenges: Cheap imports in East and Southeast Asia, trade barriers, and European regulations (e.g., CSDDT) posing challenges to steel operations.
• Battery Materials Volatility: Demand fluctuations and price changes in lithium and nickel markets impacting profitability of rechargeable battery materials business.

Question and Answer

• Q: About steel market situation, European regulations, and EV battery materials strategies.

A: Response from marketing and ITA heads on steel market challenges, European regulatory preparations, and HyREX/other eco-friendly material strategies.

• Q: East Asia steel exports, nickel prices, and iron ore investments.

A: Response on trade barriers in East Asia, nickel price outlook, and iron ore/coking coal investment plans.

• Q: EV market slowdown and CapEx/lithium BEP.

A: Response on EV market slowdown impact and CapEx adjustments, plus lithium BEP timeline.

• Q: Steel sales outlook and asset restructuring.

A: Response on steel sales outlook for H2 and impact of non-core asset restructuring on earnings