East Asian steel companies see profits rise despite sluggish market

China's Bao Steel Group, Korea's POSCO Holdings (HD), and Taiwan's China Steel (CSC), three major East Asian steel companies, reported y-o-y increases in their consolidated financial results for Q1FY'24.

The steel industry is facing a downturn due to fall in China's real estate market and excess of steel production in China. This has led to a decline in profitability for steel companies, and they are now struggling with how to address the worsening supply-demand imbalance caused by China's excess steel.

Cost reduction efforts

In response to the market challenges, all three companies are focusing on cost reduction initiatives. Additionally, they are promoting the development and production of higher-margin products like green steel and electrical steel sheets. For instance, POSCO aims to achieve significant cost reductions to ensure its "super-disparity manufacturing competitiveness."

Bao steel: Strong profits, but challenges remain

China's Baowu Steel Group reported a significant profit surge, with their total consolidated profit reaching an estimated RMB 5-5.5 billion (roughly $0.69-0.76 billion). This marks a more than fivefold increase compared to the same period last year. The core subsidiary, Baoshan Steel, was a major contributor with a total profit of RMB 2.788 billionn (around $ 0.38 billion). However, profitability improvements were widespread, extending beyond Baoshan Steel. In an effort to boost efficiency, Baowu plans to share production and operational knowledge from their subsidiary Takarasteel with other group companies. This knowledge sharing initiative, along with potential price hikes, is expected to improve overall efficiency within the Baowu group.

Although, Baoshan Steel cut prices for nearly all products in May, following their April sales announcement. As a result, Prices are currently only half of what they were originally set at. This fall is due to a combination of the real estate recession and a general oversupply of steel. China's steel industry, categorized as "black metal," is reflecting this weakness, with a deficit of 21.36 billion yuan between January and March according to the National Bureau of Statistics. Despite China's steel industry struggles, Baowu and Baosteel are doing well, their main challenge is finding a way to secure stable profits in a weak domestic market.

POSCO Holdings: Overseas struggles, sees modest growth

POSCO HD's steel business showed a modest improvement y-o-y, with consolidated operating income reaching KRW 339 billion (around $ 0.24 billion), reflecting a slight increase of 0.3% y-o-y against same period previous year. However, the company's overseas steel segment continues to be a cause for concern. It generated only KRW 4 billion and remains unprofitable. Finding ways to strengthen this sector is a critical challenge for POSCO HD's future.

While the steel business's struggles, the global infrastructure division emerged as a bright spot, generating profit of KRW 340 billion ($0.24 billion) and significantly boosting HD's overall performance. The rechargeable battery materials business, a promising area for future growth, also turned a corner, moving from a loss of KRW 169 billion ($0.12 billion) in the previous fiscal year to a profit of 6 billion won this year. However, its contribution to overall earnings remains modest.

Taiwan China Steel: Seeks profitability improvement

Taiwan China Steel Co., Ltd. (CSC) reported profit of NT$770 million ($23.76 billion) in Q1, marking an improvement from a loss in the same period last year. However, the company's operating profit margin remains low at just 0.8%, highlighting the need for further improvement. To address this, CSC is focusing on cost-cutting measures such as utilizing AI and energy conservation to strengthen its business foundation.

Note: This article has been written in accordance with an article exchange agreement between Japan Metal daily and BigMint.