PKX

Overall Financial Performance

• Despite macro headwinds including intensified energy supply risks from the Middle East conflict and Korean won depreciation, POSCO Holdings maintained an upward profit trajectory, with all core segments (steel, battery materials, energy) recording QoQ profit gains; the RBM (lithium) sector returned to surplus for the first time in 9 quarters.
• 12 restructuring projects completed in the first half of 2026 generated KRW 475.4 billion in incremental cash, focused on divesting underperforming noncore assets (including loss-making Chinese steel operations PZSS, QPSS, and the STS processing center); the firm targets KRW 3.5 trillion in total proceeds from restructuring by 2028 to improve long-term performance and capital efficiency.

Strategic Growth Project Milestones

• Lithium: Signed an investment agreement with Australia's Mineral Resources, with the JV scheduled to launch by October 2026; signed a DLE demonstration plant cooperation contract with Anson Resources, targeted to come online in 2027. POSCO Argentina Plant 2 entered initial operation, with full commissioning scheduled for October 2026.
• LFP Cathode Materials: POSCO Future M is recalibrating its Pohang NCM cathode lines for LFP production, targeting commercial readiness by January 2027; construction has begun on the CNP New Materials JV LFP plant, with commercial production targeted for the end of 2027.
• Rare Gases & Rare Earths: POSCO Air Solutions' 100% owned high-purity rare gas plant in Gwangyang was completed in June 2026 to serve the semiconductor industry. POSCO International signed a rare earth partnership agreement with U.S.-based ReElement Technologies in May 2026, with a total project cost of $200 million targeting commercial production by 2028.
• Green Steel: Gwangyang's 2.5 million tonne electric arc furnace (EAF) was completed in June 2026; early operation mixes blast furnace molten iron to produce general purpose steel, with ongoing development to produce high-grade automotive and electrical steel to comply with EU CBAM environmental regulations; HyREX demonstration plant construction has commenced.

Safety Management

• A fatality at construction affiliate POSCO E&C in June 2026 prompted a full group-wide safety review. POSCO is partnering with global safety provider dss+ to assess 33 group affiliates across 4 key risk areas, with risk sorting and corrective action plans targeted for completion by October 2026.

• Steel Segment: Management expects continued quarter-over-quarter profitability improvement in Q3 2026. After completing a major hot rolling mill overhaul, no large maintenance shutdowns are planned, with full-capacity crude steel production targeted at ~9 million tonnes; the domestic steel market shows early signs of stabilization after years of declining profitability, and the domestic sales share has recovered to 55.5% this quarter from a multi-year low of ~51%.
• Lithium Segment: A temporary Q3 2026 production slowdown is expected at POSCO Argentina due to Southern Hemisphere winter reducing pond evaporation, plus planned LP dryer equipment replacement during the off-season. Full operation will resume in Q4 2026, when long-term supply agreements for certified products take effect; certified product sales will deliver higher margins than discounted uncertified product, so Q4 2026 performance is expected to exceed Q2 2026 levels even after accounting for Plant 2 ramp-up costs. Spodumene price spread headwinds are expected to continue for POSCO Pilbara Lithium Solutions in H2 2026.
• Long-Term Lithium Expansion: A final investment decision (FID) for Argentine brine lithium expansion to 100,000 tonnes annual production (Phase 3 and 4) will be completed by the end of 2027, after a pre-feasibility study concludes by the end of 2026. FID for 30,000 tonnes annual hard rock lithium expansion will also be made in late 2027, with decisions flexible based on market conditions. All expected lithium price declines from new Australian mine production have already been incorporated into long-term profitability projections.
• Shareholder Returns: 10% of total proceeds from affiliate equity divestments (projected at KRW 3.5 trillion, equal to ~KRW 350 billion) will be allocated to incremental shareholder returns, offsetting the expected annual KRW 80 billion dividend reduction from sold controlling stakes; new profits from current growth projects (notably lithium) are expected to offset the dividend gap within 4 years, when new plants reach full-scale operation.

1. Steel: POSCO (core domestic steel) recorded KRW 274 billion in operating profit, a KRW 61 billion quarter-over-quarter (QoQ) increase, with an operating margin of 2.9%. It contributed ~33.5% of total consolidated operating profit. Major overseas steel subsidiaries performed broadly stable, with the Zhangjiagang China operation excluded from consolidated reports this quarter following divestment. This segment contributed 58% of total consolidated operating profit overall.
2. Rechargeable Battery Materials (POSCO Future M): Posted a 3.9% operating margin, a 1.6 percentage point QoQ improvement. Base materials benefited from rising oil-linked chemical prices, and energy materials achieved a small profit. This segment contributed ~6.3% of total consolidated operating profit.
   • POSCO Argentina Lithium: Recorded its first ever quarterly operating surplus of KRW 11 billion, with sales volume up 160% QoQ and revenue up 290% QoQ.
   • POSCO Pilbara Lithium Solutions: Generated KRW 102 billion in revenue (QoQ increase) with operating losses reduced to KRW 1 billion.
   • POSCO HY Clean Metal: Operated at nearly 100% utilization and maintained steady monthly profit gains despite feedstock sourcing challenges.
3. Infrastructure (POSCO International): Recorded its highest ever quarterly and half-year operating profit, with 22% QoQ profit growth driven by energy segment price gains and production expansions, and material segment improvements from newly acquired Indonesian production assets. This contributed ~30.5% of total consolidated operating profit, including a one-off divestment gain from completed noncore asset sales.
4. POSCO E&C: Recorded KRW 44 billion in operating profit this quarter, reaching KRW 97 billion in first half operating profit, marking a strong recovery from a KRW 452 billion temporary deficit in 2025. This contributed ~5.4% of total consolidated operating profit.

Total consolidated results: Revenue of KRW 19.3 trillion (+KRW 1.4 trillion QoQ), operating profit of KRW 819 billion (+16% QoQ), EBITDA of KRW 1.9 trillion, and first half CapEx of KRW 3.7 trillion.

• Macro and market risks: Persistent Middle East conflict creates energy cost and logistics volatility; ongoing foreign exchange volatility and raw material price increases create cost pressures for steel operations. New Australian lithium mine expansions are projected to push spodumene prices down, which negatively impacts the profitability of Argentine brine lithium operations, though price declines have already been incorporated into business plans.
• Trade policy risks: Reduced EU steel quotas and new U.S./Japan AD tariffs on Korean steel products create export headwinds; sales volume losses from trade restrictions may require shifts to alternative markets.
• Operational risks: The carbon-reduced steel market produced via EAF is still in an early development stage with no global pricing standard, so it may take time to achieve sufficient premium pricing to offset higher EAF production costs. POSCO Pilbara Lithium Solutions faces severe profit pressure as raw material (spodumene) costs currently account for ~70% of lithium hydroxide prices, a level where no producer can operate profitably.
• Safety risk: A recent fatality at POSCO E&C revealed gaps in group-wide safety management, requiring costly overhauls of safety protocols across all affiliates.
• Project risk: Rare earth business development depends on successful acquisition of separation and refining technology, as well as secure raw material sourcing from international partners, both of which carry execution uncertainty.

Q: What is POSCO's outlook for second half steel pricing by end market, and how will you respond to new EU quota reductions and the PTKP Indonesia Phase 1 profitability outlook? / A: For steel pricing, POSCO will gradually pass through cost increases from rising raw material and energy prices: automotive contracts (formula-based) will incorporate cost variables gradually in H2, shipbuilding will adjust prices to reflect costs amid strong demand, while home electronics pricing will remain conservative due to regional production shifts. For EU quotas, POSCO has secured a more favorable quota allocation than competitors via government negotiations, will shift to selling more high-margin products in the EU to offset volume cuts, and will use trade association and FTA provisions to protect its market position; EU sales account for 10-15% of total exports. For PTKP Indonesia, Phase 1 is currently cash flow positive with 90% of invested CapEx recovered via EBITDA; Phase 2 will target the under-supplied Southeast Asian automotive steel sheet market, with a construction start date not yet finalized.

Q: What are the profitability outlooks for brine vs hard rock lithium, have potential price declines from new Australian mines been incorporated into your projections, and when will expansion decisions be made? / A: At long-term projected lithium prices of $30,000 per ton, brine lithium is expected to achieve ~80% operating margins once assets are fully depreciated by 2035. Expected lithium price declines from new Australian mine production have already been fully incorporated into long-term plans; lower spodumene prices hurt Argentine brine lithium profitability but benefit hard rock operations. FID for Argentine Phase 3/4 expansion and hard rock lithium expansion will be completed by the end of 2027 after market conditions and project feasibility are finalized. Phase 3/4 will shift focus to lithium carbonate production instead of lithium hydroxide.

Q: How will the cost of the new Gwangyang EAF impact Q3 profitability, and when will it achieve target profitability? / A: The Q3 profitability projection already includes all expected costs from the Gwangyang EAF's initial operation. Currently, utilization is low, and POSCO uses a hot metal mixing process to develop high-grade steel product. The carbon-reduced steel market is still in its early stage, so POSCO is conducting test supplies to global OEM clients to build demand; the firm expects to be able to command a sufficient premium to offset higher EAF costs as the market matures, and will ramp up utilization next year to improve profitability and volume.

Q: What is the current margin structure for POSCO's lithium projects, especially Pilbara? / A: POSCO Argentina Phase 1 and 2 are already profitable, with costs only slightly above market benchmarks, and profitability will improve as production scales. For Pilbara Lithium Solutions, when spodumene prices are high, raw material costs account for ~70% of total lithium hydroxide costs, a level at which no producer can operate profitably; this is the primary source of Pilbara's current pressure. If new Australian mines bring spodumene prices down as expected, Pilbara's profitability will recover. Profits are ultimately driven more by ESS demand growth than process differences between brine and hard rock operations.