POSCO (NYSE:PKX) Holdings (005490.KS), a global leader in steelmaking and battery materials, held an earnings call where CSO Ki-Seop Jeong presented the company's strategic plans and financial results for Q1 2024. Despite a 3% quarter-over-quarter revenue decrease to KRW 18.52 trillion, the company's operating profit surged by 92% to KRW 583 billion. POSCO Holdings announced its commitment to enhancing global competitiveness through AI technology, transitioning to low-carbon production, and expanding its battery materials business. The company is set to commence lithium production in 2024 and has already shipped its first batch of lithium hydroxide. However, the slowdown in the EV market has prompted a more cautious investment approach, and the company is considering retiring Treasury stocks to enhance shareholder value.
Key Takeaways
- POSCO Holdings aims to strengthen its position in steelmaking and battery materials.
- The company reported a revenue decline but a significant increase in operating profit for Q1 2024.
- Plans include achieving Lighthouse Factory Certification, building an AI-driven intelligent factory, and transitioning to low-carbon production.
- Investment in battery materials will focus on upstream assets and exploring markets like solid-state batteries, with careful consideration given to the EV market slowdown.
- POSCO Holdings is considering retiring Treasury stocks to increase shareholder value.
- Lithium production is set to begin in 2024 with expansion plans in the EV battery value chain.
- The company will focus on cost-cutting measures, including automation and diversifying sourcing.
Company Outlook
- POSCO Holdings intends to fortify its global competitiveness through technological advancements and a strategic focus on low-carbon production systems.
- The company's Battery Materials business is targeting investments in promising assets to create a robust value chain.
- Management changes and a revised business plan aim to improve competitiveness and adjust growth in key business areas.
Bearish Highlights
- Acknowledgement of the decline in demand for steel, particularly in the construction and home appliances sectors.
- The Energy business saw a decrease in operating profit due to lower gas sales.
- POSCO E&C reported a drop in revenue from lower construction sales.
Bullish Highlights
- Operating profit in the power generation business increased due to cost-saving measures.
- POSCO Future M saw an increase in sales volume despite a slight decrease in revenue.
- The company is developing a new global plan to enhance competitiveness in the steel market.
Misses
- The green future materials business recorded a loss due to inventory impairment.
- The slowdown in the EV market has led to adjustments in production capacity and investment timelines.
Q&A Highlights
- The company discussed its approach to lithium pricing, aiming for two-digit EBITDA and operating margins from 2025.
- Plans to double overseas crude steel output by 2030, focusing on high-growth markets like India, Indonesia, and North America.
- Aiming for 100% internal sourcing of raw materials for cathode active materials in the long term.
- Expansion of Hyper NO Steel capacity and exploration of opportunities in the global grid and substation industry.
In conclusion, POSCO Holdings is navigating a complex market landscape with strategic investments and operational adjustments aimed at maintaining and enhancing its competitive edge in both the steel and battery materials sectors. The company's financial health, as evidenced by the increase in operating profit despite a revenue dip, reflects its ability to adapt to market conditions and optimize its business operations. With a clear focus on technological innovation, cost competitiveness, and sustainable practices, POSCO Holdings is positioning itself for continued growth in the evolving global market.
InvestingPro Insights
POSCO Holdings (PKX), a stalwart in the Metals & Mining sector, has shown resilience in its financial performance. According to InvestingPro data, the company boasts a market capitalization of $22.47 billion as of Q1 2024. Despite facing a challenging market environment, POSCO Holdings has managed to maintain a strong gross profit of $4.737 billion with a margin of 8.41% over the last twelve months. This highlights the company's efficiency in managing its cost of goods sold and maintaining profitability under pressure.
InvestingPro Tips suggest that POSCO Holdings is not just a prominent player in its industry but also a reliable one for investors, having upheld its dividend payments for an impressive 32 consecutive years. This commitment to shareholder returns is further supported by the company's liquidity position, where its liquid assets surpass short-term obligations, indicating a robust financial structure capable of weathering market fluctuations.
Moreover, analysts predict that POSCO Holdings will be profitable this year, which is corroborated by the company's positive return on assets of 1.58% over the last twelve months. This profitability, along with a moderate level of debt, positions the company well for sustainable growth.
Investors looking for more in-depth analysis and additional InvestingPro Tips can explore the potential of POSCO Holdings further by visiting https://www.investing.com/pro/PKX. There are 5 more InvestingPro Tips available, which could provide valuable insights into the company's prospects. For those interested in a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24 to get an additional 10% off.
Full transcript - POSCO (PKX) Q1 2024:
Ki-Seop Jeong: Greetings, everyone. I am CSO of POSCO Holdings. My name is Jeong Ki-Seop. At the General Shareholders Meeting held in March, our shareholders offered approval of the new management team and the Board. POSCO Holdings has defined its new corporate vision as materials for tomorrow, innovation for excellence. To achieve this vision, we have identified seven major initiatives and 30 specific action items that are already under implementation. Before delivering the Q1 earnings report, I'd like to open the meeting with a brief introduction of what investors and shareholders may want to know most, which is what the new CEO and the management team would like to pursue as our strategic way forward. First, in the group's core businesses, namely steel and rechargeable battery materials, we intend to focus our resources and capabilities. In steelmaking, our aim is to fortify our global competitiveness. Toward that goal, we will take the Lighthouse Factory Certification gained in 2019 on POSCO Smart Factory. Then by applying AI technology, we will take it up another notch to build an intelligent factory. Additionally, by transitioning to an economically viable low-carbon production system, we will acquire unrivaled production and cost competitiveness. In the Battery Materials business, by actively investing in promising assets that have future growth potential, we will have a replete materials value chain with undisputed competence. Second, EV market slowdown is being observed. The industry has gone into an adjustment period, but POSCO Group sees it differently. We believe that this is the right time to acquire native competencies in the battery materials business to get ahead of the race and to own breakthrough technologies. This is an opportunity for us. We're especially interested currently in the upstream process in gaining promising assets. Recently, we've witnessed sufficient price drop of battery resources, including lithium price. If we can acquire prominent assets today, in the long-term, we believe they will serve as the foundation of growth and profit. Additionally, we intend to act early to get to future markets such as solid-state battery materials. This means we'll develop new R&D-based process technologies in lithium metals and dry recycling. Also, by forging stronger collaboration with our customers, we'll focus on commercialization of next-generation materials. By taking advantage of this market adjustment period, we'll diversify ways such as through M&As to expand our business and market. However, in recognition of the EV market slowdown, we will make rational decisions to push out some of our investment schedules. Moreover, we'll focus our energy on strong profit businesses. Let me take an example. Considering the slowdown in the supply of EVs and the resulting decline in used batteries, which serve as a source of raw materials, we have made the decision to delay a part of our overseas investments to be made in recycling. For our capacity expansion plan between 2024 and 26, please refer to Slide 5 of the presentation deck. As you are well aware, 2024 is year 1 of lithium production at PASCO Group. Come year-end, we will begin operation of our plants responsible for lithium, nickel and precursors. Once those plants come online, our EV battery value chain, which had gaps here and there, will become replete. And in 2024, we will begin to see its full shape and the full value chain in action. I give you my word. We'll do our best to keep this schedule. Third and final, as one of the values that this company holds in the highest esteem, we want to enhance shareholder value. Recently, the FSC unveiled the Corporate Value Up program, which has galvanized more attention to asset allocation and shareholder return policies. We have already begun discussions with the Board regarding the implications of the corporate value-up program. And as a result, we'll be taking an active look at ways to enhance our corporate value, including the possibility of retiring our Treasury stocks. I address everyone present at this meeting and remind you that we are confronting challenging business environments. So, we're making efforts to recover short to midterm profitability by carefully making investment asset allocations. Our goal is to implement an invariable growth strategy aimed at upgrading the company's long-term value. So, let me now give the floor to the Chief of LiB, who will present a more detailed earnings report for the first quarter of '24.
Lee Kyung-seop: Good afternoon. Our CFO, Jeong Ki-Seop shared with you our new corporate vision, and now I'll present the first quarter consolidated earnings of POSCO Holdings. So please refer to Page 6 in your brochure. In Q1 of 2024, revenue decreased 3% Q-o-Q to KRW18.52 trillion, while OP increased 92% to KRW583 billion. This was due to the profit recovery of the steel subsidiary POSCO, and the reversal of inventory impairment losses of the rechargeables battery materials business, which had posted a loss in the previous quarter because of the inventory loss impairment. But as turned back to profit Q1. EBITDA in Q1 was KRW1.54 trillion. CapEx invested was KRW1.8 trillion on a consolidated basis and KRW3,000 billion on a standalone basis. Net borrowings was up by KRW1.8 trillion from the end of last year to KRW9.86 trillion and our net debt-to-equity ratio still remains low at 16.3%. Next is performance by key businesses. The operating profit in the Steel business fell slightly to KRW339 billion from KRW346 billion of the previous quarter. POSCO's operating profit improved by KRW32 billion Q-o-Q to KRW295 billion but was impacted by lower sales volume at its overseas steel material subsidiary. As for the infrastructure business, it recorded operating profit of KRW340 billion, up KRW48 billion from the previous quarter. In the green future materials, we recorded a loss of KRW169 billion due to KRW130.5 billion inventory impairment loss, factoring in drop in lithium and other mineral prices in the previous quarter. But due to the reversal of the inventory impairment losses of KRW66 billion in the first quarter, returned profit to about KRW6 billion. Next, I will briefly highlight the key business activities for Q1 of this year. On April 16th, POSCO global Lithium Solutions shipped the first batch of lithium hydroxide base on lithium ore, which was the first of its kind in Korea. After completing the facility in November last year, we began production in March after various tests, and the production volume in the first quarter was 148 tons. Although it was not a huge volume since it's our first time, we believe that we'll be able to produce, including the plant 2 to be completed in June, a total of 43 kilotons of lithium hydroxide after normalizing operations for about a year. Currently, product certification is in progress at POSCO Future M, and we're discussing certification procedures with two additional battery makers. Meanwhile, as for the products produced, we have signed a sales agreement with Company A in December last year and are currently negotiating sales agreements with three clients. Lithium hydroxide produced by PPLS is a lithium hydroxide that can get IRA tax benefits, so it is expected to contribute to stabilizing the Korean rechargeable battery materials supply chain. Next, we have completed silicon anode active materials downstream facility. POSCO Holdings is constructing a commercial production line of POSCO Silicon Solutions at Young-il Bay Industrial Complex in Pohang with an annual capacity of 550 tons. We completed the downstream facility first, and the upstream facility will be complete in September and will be ramped up in stages after validating the mass production of the first phase of 550 tons. POSCO Holdings, since the acquisition of POSCO Silicon Solution, has been focusing our group R&D capabilities to maximize product performance and efficiency and productivity gains. The product portfolio has been expanded from one to four products and low-cost, high-quality coating technologies based on steel byproducts have been applied. And as a result, in terms of efficiency capacity, life span and swell, we have been able to secure superior performance compared to the industry average. Currently, research on process technologies that can further improve the productivity of core processing facility is being conducted. Next, I will elaborate on performance by key areas. Please refer to Page 10. First up is POSCO. POSCO's crude steel output was reduced by 358 kilotons from previous quarter to 8,661 kilotons due to the refurbishment of the po long number 4 blast furnace. However, despite lower crude steel output, product sales decreased 101 kilotons from the previous quarter to 8,229 kilotons due to the utilization of semi-finished industry inventory. Despite the decrease in sales volume, the product sales price increased and sales revenue went up by KRW14.4 billion to KRW9.52 trillion. Carbon steel sales prices increased to KRW1.07 million per ton, up KRW23,000 from KRW984,000 per ton in the fourth quarter. Breaking down the increase, we can see that the unit price hike and FX impact accounted for KRW11,000 per ton, while more sales of higher margin products and other changes in product composition accounted for KRW12,000 per ton. Operating profit went up by KRW32 billion Q-o-Q to record KRW295 billion. Despite the increase in the raw material costs, after the price increase efforts and the reduction of the onetime cost impact of the collective bargaining agreement reached last December, we could minimize cost impact and recover profits to some degree. The first quarter was particularly volatile for coking coal prices. After rising to $3.38 in early January, the HTC prices began to fall in March and are currently hovering around $240 down about 30% from peak. However, due to the time lag between the raw material purchases and product sales and change in exchange rate, it is expected that the cost of goods sold will not decrease until sometime around third quarter. Page 11. Overseas sales subsidiaries also continued to be impacted by the weak global market conditions. PT Krakatau in Indonesia in Q1 saw increased processing costs due to steel plate line repair and the raw materials prices also increased 6.6% contracting OP. Maharashtra in India also saw sales price drop due to global steel market downturn, thus reduced roll margin recording lower revenue and OP. However, China's Zhangjiajang Kang SGS [ph], due to the impact of lower raw material prices coming from the oversupply of nickel, it was able to narrow its loss from a very large loss of the previous quarter. Next is POSCO International. Revenue decreased by about 2% Q-o-Q, but OP increased by 24%. The Steel and Major Commodities Trading, profits increased by KRW11 billion due to the expansion of sales of automotive steel plates to the U.S. and Europe's green industries in the Energy business. Operating profit declined due to lower gas sales and lower recovery of investment costs in gas sales, while operating profit increased due to the cost saving measures like direct import of low-cost LNG in the power generation business. Next is POSCO E&C. Because of lower revenue in the construction division, the overall revenue decreased by approximately 12% Q-o-Q, but profit remained at the same level as previous quarter as lower cost in the plant and infrastructure business due to the base effect of the previous quarter were offset by higher cost in the housing business. Next, POSCO Future M. As you can see on this slide, while the revenue, which had been growing steadily, has now gone down about 1% to KRW1.138 trillion. So, you may think that it is stagnant. And this was due to actually decline in sales price, and the sales volume is actually growing continuously. As for cathode active materials, the sales price dropped 21% Q-o-Q. But despite all that, the sales volume went up, helping to maintain the revenue at the same level as previous quarter. As for anode active materials, we have expanded shipments to new clients other than Korean battery makers, which resulted in 9% in surge in sales volume with stronger profits. Now this wraps up the earnings presentation of POSCO Holdings. We will now have a Q&A session.
Operator: [Operator Instructions]. The first question comes from Hyundai (OTC:HYMTF) Securities, Mr. Park.
Park Hyun-Wook: Greetings. My name is Park Hyun-Wook. Thank you for giving me this opportunity. I have a couple of questions. The first one is about the steel market. In the first quarter, because demands have been declining in the market, I think a lot of that has been reflected in the earnings report for POSCO. So, in the first half of this year, how do you see the market? The second question has been addressed, but it's about lithium price. So, in terms of assets acquisitions such as Salt Lake and other mines, I think that's a good idea. But is there any more specific plans that you can share with us? I would love to hear about them. And looking at the current lithium price, PPLS, once it goes into full operation, EBITDA margin and operating profit margin, how do you see those panning out? And another question is about the stocks you did consider retiring some of your treasury stocks. But looking at your global peers, one of the risks that POSCO Holdings has is the dual listing of its companies. So, from a long-term perspective, do you have any plans to address these issues? And I think, you are looking into reducing about KRW1 trillion of cost every year, but there are challenges here. So where do you intend to cut these costs amounting to about KRW1 trillion? Those are my questions. Thank you.
Unidentified Company Representative: So, among your questions regarding the steel market, I'd like to ask Mr. Joon Yoon Sik from POSCO Marketing. And on the questions regarding lithium, Mr. Ji Suh-Won, Head of Lithium Business Team, will answer that question. And for Treasury Stocks, we will ask Ms. Han, Head of IR, to respond on production cost. I'd like to ask Mr. Han Young-ah, Head of Finance, to answer those questions.
Han Young-ah: Let me address the steel market situation. There's interest rates as well as inflation and various other factors that add to the decline of the market. We also have the crisis in the Middle East, and so this is a prolonged depression. Since December, we have seen the market decline and in China, because we have not seen a stimulus plan that is as effective as it was made out to be. There is some disappointment, and so prices continue to fall. So, although price is holding up in some places, I think demand is the serious issue, because it is really falling. In domestic demand, we have enough demand, so to speak, but I think the automotive sales are declining a little bit, and of course, EVs are suffering a little bit, too. But exports are active. So, 4.2 million units sold last week, I think, I'm sorry, last year, I think that will hold up. And new orders as well as new shipbuilding, I think this is going to hold up some of our sales. But in construction, because of profit losses, we are seeing prolonged recession in this market. In Home Appliances, because this is also impacted by the construction market. I think we are going to continue to see that market decline as well. And oil price drops as well as the attack on Israel of Iran is impacting some of the market situation as well. So, we will have to continue to keep a keen eye on how the market moves. I'm sorry to have to report such a depressing landscape. But in the second quarter, we have long-term contracts with our OEMs and so that's a bright spot for us. And although we do renegotiate contracts on a half-year basis, we do have quarterly orders that are continuously rolling out. And by applying some of the cost fluctuations, we have renegotiated some of our contracts with the automotive companies, and the same thing is happening with the shipbuilding companies. So, in the steel using industries as well as in other areas, we are going to keep an eye on the market and try our best to pull what is going to be most beneficial to us. Let me address the lithium market or lithium price that is. On the lithium resources, lithium is about $15,000 about $14,000 per ton. So, it has hit, in our opinion, the lowest point. And up to now, we've seen lithium resources overvalued up to now. So perhaps we are going through the appropriate adjustment period. And I although I can't give you exact projections at the moment, in hard rock lithium, we are looking at different assets in North America. And as for Salt Lake, because the only Salt Lake available are in southern part of America, we are actively looking there as well. And of course, we have Pilbara Minerals, our partner with whom we are discussing second phase expansion. And secondly, POSCO Pilbara Lithium Solutions operating performance, I think there was a question about our outlook for the rest of the year. At PPLS, we have completed pilot operation by March, and now we are in ramp-up. Of course, it's always important to maximize our business as soon as possible. But, right now, we're focusing more on adding substance to our facility and adding efficiency. So, certification is, underway at the moment, and we're validating our processes. So rather than giving you specific numbers right now, which is a little bit challenging, we'd like to give you a brighter picture about when we will complete all of these processes, which will be in the beginning of next year. So, from 2025, we are targeting two-digit EBITDA and operating margin. And on the valuation improvements and the dual listing of affiliated companies. There are three axes to enhancing shareholder value: how to grow, how to enhance value and how to address the holding company discount, HOKO [ph] discount. And as our CSO has mentioned, to return shareholder value, I don't want to speak too much about the theoretical framework. We do make sure to report all of potential challenges to the board so that we can address them more actively. And so, we will be looking at each issue more actively this year. For the issue regarding dual listing of affiliated companies, we have in our articles of association a clause that bars the dual or double listing. Even if a new operating company is to be established, that company remains unlisted, and we have repeatedly made this clear to you. There are no listed companies that we're consider at the moment. So, you spoke about cost reduction in the amount of KRW1 trillion. Let me break that down. So, we're looking at three main areas for potential cost reduction. First, processing costs. On a short-term basis, when we install new facility, we will be testing for enhanced efficiency. And on a long-term basis, robotics and AI technology will be applied to maximize productivity through automation. Secondly, in manufacturing costs, a large part of the manufacturing cost is taken up by raw materials cost. So, this is where we have to make, improvements. Short-term plan, the raw materials, highly-priced domestic raw materials, we will be diversifying that, sourcing. And midterm, we will be keeping an eye on the market to make sure that we make timely and most appropriate decisions. And we will be making equity shares investments to be able to stabilize and make our supply more reliable. And fourth we will create a master plan that will be not only drawn up, but implemented on our facilities. We will be making a more, bird's eye view review of our facilities and use that to improve our profitability. Midterm for carbon neutrality strategy, we will be looking into ways to optimize the application of new facilities too. That concludes my response.
Kim Yoon Sang: Hello. I am Kim Yoon Sang from HI Investment Securities. I have a few questions. So, we have a launch of the new management and you also mentioned this during the last earnings call. Of course, there are changes in the market conditions as well. So, under the new CEO leadership in terms of the steel and infra as well as rechargeable materials, I would like to know what kind of changes there have been in terms of business plan. And the second question is China has now entered a phase and that's worrying a lot of investors. And when it comes to the steel, I would like to know what is your mid- to long-term strategy. For example, like Japan, are you going to go for M&A? Or are you going to go for restructuring in terms of like demand, control? So, I would like to know your strategic direction for the steel business going forward. And the third question, I think you sort of addressed it in your previous answers, but there are also concerns about the imported goods. In terms of P&L and raw materials, we have to actually boost them up. But in terms of market conditions, there are difficulties to do so. So, in the latter half of this year, I would like to know what the investors should anticipate with regards to this topic. And I would like to ask about the mid- to long-term profit and loss about the lithium business. So, in the past, you mentioned about the breakeven at $30,000, but as for Albermo [ph], actually, they presented EBITDA margin depending on the lithium prices. So as for us, we would like to know if you have any changes regarding the lithium price outlooks and its factoring in the lithium business.
Unidentified Company Representative: So, there was a question about whether there is a possible changes in the business plan with the new CEO or the new leadership. So first of all, it's going to be [indiscernible], the Head of Business Strategy Team. And regarding the imported goods, it will be by Mr. Eom, the Head of Marketing Strategy Office. Regarding the lithium prospects, it will be Hee-seok [ph], Head of Lithium Business, who is going to address the question.
Unidentified Company Representative : Hello. I am Lee [indiscernible], Head of Business Strategy Team. So, the first question was about whether there are changes regarding the business plans with the new leadership. As it was mentioned in the introduction, the new management has reviewed the existing businesses and has come up with a need to revise the current business plan and specially to improve the competitiveness or inherent competitiveness of the steel industry, also business, because there have been concerns that it has become less competitive over the years, but steel is our major growth driver. So, we want to fully normalize its operations. And the second is Rechargeable Batteries and Materials business. That is the second pillar, has been the second pillar of our growth for the past few years. There's been a lot of investments made and has seen a rapid growth. And recently, the overall actually situation or the industry is slowing down. So, we want to further strengthen the existing facilities and see growth at the same time, but we want to adjust the speed of the growth at the same time. So that is the direction we have for the rechargeable battery materials. That was a slight change. With regards to the infrastructure, we will pursue the competitive businesses in this segment. However, there are some subsidiaries that may be underperforming, and then we would like to take some measures to address that. And we have to take into account the growth potential and the competitiveness, the contribution of each and subsidiaries. We want to do an overall evaluation and assessment of the current status so that we can implement some correctional or adjustment measures. And another aspect is not only for the steel but also the rechargeable battery materials. But as you saw in the IR presentation, you can see that the market condition is not as good as we had expected. So, the profits might further decline for each subsidiaries. So, we are also reviewing all of our CapEx plans, and our CapEx for this year may be slightly reduced compared to the initial plan. So, we will cut down some of the CapEx plans so that it will not undermine too much the operating profit. So, I mentioned about the steel infrastructure and the rechargeable battery materials business plan adjustments that are planned.
Unidentified Company Representative : Yes, regarding the steel market in China and its downturn, everybody is aware of that. And we have to respond to that. And our mid- to long-term strategy is the following. Of course, we're not at the stage to reveal the specific plans. But as our CSO mentioned in his introduction, with the launch of the new leadership, we're currently in the process of developing a new global plan, but our competitiveness lies in the cost. So as our Head of Finance also said, we will save and cut costs and at the same time that includes also restructuring of the facilities and plans. Which facility is under review right now? And probably we can get back to you with more details during the last during the next call. And regarding the Chinese and Japanese imported goods and its concerns, we are aware of that as well. And as for Japan, thanks to the, because of the low yen regarding a lot of imported goods and also with China because of cost competitiveness. But there are also some illegally imported goods from China. So, we want to prevent that. And as for Japan, there are Japan and Korea private consultative mechanisms and there are also volumes of imported goods that have been dumped in terms of prices. So, we want to also present that as well. And as for the steel specification, it's going towards more the melting rather than rolling. So, we want to also address these types of irregularities and there are constant demands to do so in the Korean cell market as well. And of course, we have to increase prices as well against this downturn of the market. And the automotive is very much related with the raw materials cost. And in the first half of this year, there were ups and downs of raw materials cost but is slightly on the increase. And the exchange rate, there is a depreciation of the Korean won. So, the price negotiations with the automotive sector, we believe that the formula will be settled to increase the, possibly increase the prices in the latter half of this year. That will be the basic tone of our negotiation. And as for the shipbuilding, as for the cost, we are rebuilding whether we should increase the price and the steel plate, actually price is still low. So, we have to also take into consideration the long-term relationship with the shipbuilding sector. So, all of that is factored in, in our negotiation with the shipbuilding sector.
Unidentified Company Representative: Let me address lithium. So, yes, our profit loss, was projected based on $30,000 per ton. But yes, we've seen a lot of changes now and it's fallen to $16,000 per ton. And so, we are adjusting our plan based on $15,000 per ton at the moment. So, based on a plan that was based on $30,000, yes, profitability is being squeezed. And to address the, hard rock and liquid-based, separately. First of all, hard rock, how much are we going to be able to acquire this hard rock? At what price? This is a key. POSCO acquires spodumene from Pilbara, and this is the most competitively priced hard rock. And we will be normalizing operations in the next three years. So, the processing cost that we will be working with during, the next 3 years, it's still competitive against, our industry peers. Of course, we are not going to be able to match the top competitors, but we have enough to remain competitive. In POSCO Argentina, our Salt Lake that we've acquired, this is top quality, globally top rated. So, because there is relatively low impurities, condition for extracting lithium out of this brine is quite good. And once we stabilize our extraction process, I believe we will be able to give you the best cost structure among our peers.
Operator: Next question is from Eugene Securities, Mr. Lee Eugene.
Eugene Lee: I'm from Eugene Investment and Securities. I have two questions. First, in the European market, how are we planning to address the European market situation? And what are some of the progresses that you've made in your plans toward the European market? Secondly, the carbon lithium is more expensive than lithium hydroxide, and I believe that you are making preparations for lithium carbonate. And so, I wonder if you've changed your plans in any way in this area. So, I think you want us to address CBAM and on Green Steel. So again, Mr. Jeong will address this question as well as Ms. Kim Hee [ph], who is in charge of carbon neutrality strategy. And for the question regarding lithium, I'd like to ask Mr. Lee to address that question again. Thank you.
Ki-Seop Jeong: So, as you're aware, CBAM has gone into a transition trial period since October last year. And so, we have been mandated to report the carbon content in our products, and we have to, buy certain certifications. And how are we addressing this? So, to minimize risks here, from 2022, we've had a designated team to address these issues. And when we make our first report, we will be holding a hearing, and, we will be creating guidelines in both languages, Korean and English. So, these are some of the plans we have. On the 31st of this year, that will be the final stage of the trial period. After that period, we will have to report all of our products. And so, there are challenges we face, and we are addressing them step-by-step. There are some irrationalities that we need to be able to address and remove, and so we are making these demands to address these issues. For example, some of the differences between ETS and CBAM because the carbon measurement mechanism is very different, and so we've made a demand that our way of measuring, unit measurement of carbon emissions be adopted. On green steel and carbon neutrality, let me address that. So, the HyREX pilot facility is, being prepared right now. And last year, the task force team now has, been upgraded to an inflammation team. And in Pohang, we have a development center that we've established. At this center, we are looking not only at HyREX, but also into the engineering and low-carbon research. So, from technology to pilot engineering and process development, we are looking at the full scope. And so, we are on the path to building our HyREX facility on schedule. And in Gwangyang, the Board approved investment in Gwangyang last year, and so we began construction this year. And in February of 2026, we hope to be able to complete this project. 2.5 million ton per year is our planned capacity, and we'll be using EAFs here in order to address client needs and demands. On lithium, we have heard about the price of LCN, how it has been going up. But in Japan, because LFP is in high demand. Lithium carbonate price of lithium carbonate is much higher than lithium hydroxide. For about five years, we ran a demo plant in Gwangyang and we used LH at the time, and we used this to convert that to LC. Technology wise, there is no issue there, but it's all boils down to how we look at the LFP market. So, for new projects, we are looking into producing LC, not LH. So that's in our plan.
Unidentified Analyst: I am [indiscernible] Securities. So, you mentioned about delaying your investments in rechargeable, embedded materials, and you're also reviewing the or revisiting the investment for the anode materials. And last year, you mentioned about the plan for a public offering of the PASCO Future M. So, I would like to know if there has been any changes with regards to your plan compared to last year. And the second question is about the steel business. You said that you are going to actually increase the overseas production of steel from 5 million to twice, twofold. So, I would like to know if you have visited the investment plan for the overseas steel production as well.
Unidentified Company Representative: Regarding the rechargeable, so the material, there was a question about the shares offering as well as the anode investments. So, Lee Kyung, from the nickel and next-generation business is going to answer the question. Yes, GM and Volkswagen (ETR:VOWG_p), not only the OEM manufacturers, but also a lot of our clients, the battery makers, are delaying their investments as well. So, we believe that we also have to accompany that trend as well. And adjusting the production capacity, as for now, is inevitable. So, we are in this inevitable situation to do so, especially regarding the added active materials. We have adjusted it slightly, because as for the natural graphite, compared to China, our cost competitiveness is not very good. And when it comes to the specific processes, the intermediate processes, they are not established in Korea yet. So up until then, we have to sort of like align our volume with the customer situation. And when it comes to the offerings of the Future M, the timing and date is not yet determined. Whether it's going to be a third-party offering or if it's going to be addressed by borrowings, we don't know yet. So, we are reviewing a lot of options, and probably we'll be able to achieve decision by sometime in the first half of this year. And the second question was about the steel business plan and its changes. So, it will be done by the Head of Steel Business, Mr. Lee. So, when it, I think that question is related with the mid- to long-term strategy of the Steel Business. And if you look at the crude steel output overseas, about 5 million ton, and our goal is to double it by 2030. And in that, it's not much different from the existing plant. So as for the high growth and high-profit markets, we are going to expand our business in these areas. And as for the high-profit markets, it's like India and Indonesia. And high-profit market will be also North American region. So, these regions with regards to these regions, we will continue with our existing strategy, and we have already executed our CapEx in these regions. So, we'll make sure that we will ensure a stable supply still, and we are continuing to discuss and strengthen our partnership with the local players. And that will be our direction going forward as well.
Operator: Next question is from Eugene Securities.
Eugene Lee: Thank you for this opportunity. You planned for about KRW10.8 trillion CapEx. And you mentioned last year about KRW121 trillion by 2030. I want to know if there are any changes here and how you intend to finance all of these? And on coking coal, as well as steel making materials, there's a lot of, market analysis being performed. Will you be making upstream investments? And you mentioned about 70% to be internally sourced. I wonder how you're going to address that. And, production capacity, could you give me some prospects and how you see future prospects for demand?
Unidentified Company Representative : So, let me rephrase the question. The first was about CapEx and how to finance that and how you will be allocating that to steel and rechargeable battery materials. We will ask Mr. Lee [indiscernible] to respond to that. And then, you mentioned the filmmaking companies that are going through mergers and acquisitions, so how we are looking at that market. And then the third, about internal sourcing of our steel business. And about East Steel, Mr. Hoon will address that question.
Kim Sang-hoon: CapEx? Let me address that question. So, looking at our presentation deck, in 2024 consolidated, accounts tells us that gives us KRW10.8 trillion. This is against 23 numbers about a KRW2.3 trillion increase. Breaking it down into the different business areas, I think that was the question. First, in steel, we'll be putting about 41% of the KRW10.8 trillion into that. So, about KRW4.5 trillion will go into that and most of it will go to POSCO, the steelmaker. This is to brace for carbon net zero. So, to make investments in electric arc furnaces and to manufacture or increase volume of hyper-NO production and to invest in new furnaces. In battery materials, we will allocate about 43%. That's about KRW4.6 trillion. The largest part of that will go into cathode active materials. And then next is lithium then nickel. In Infrastructure business, we'll be putting about 13% there. It's mostly for POSCO International, so for LNG investment. And other than that, investments in new technologies as well as recurring investments that will take up the rest. And you asked about the long-term CapEx, any changes there that we may have modified, but we'll be keeping that steady. If conditions change, then, they will be reflected in our rolling plan. Raw materials upstream investments, that's what I'll address. So today, BHP announced its intent to take over Anglo American (JO:AGLJ). And so yes, M&As are happening across the industry. At POSCO, we have an investment ground. And then we are looking at raw materials as well as a stable production base. And these are the two goals that we need to keep an eye on steadily. For coking coal, because Southeast Asia is building more steelmaking facilities, because of the cost burden, development is a little bit lackluster, and that's why we believe there will be some surplus supply here. So low cost and high-quality coking coal that's going to contribute to our, carbon net zero goals, that's what we will be going after.
Lee Kyung-seop: My name is Lee. We manufacture cathode active materials and we need a lot of raw materials. About 40% is lithium, another 55% is nickel. So, we want to be able to internally source all of these materials. So, the amount of lithium and nickel that we will need, we will have to set up mid to long-term plans on that volume. All the nickel that we need for, sorry, lithium for our cathode active materials, we want to be able to internally source. So long-term, it's going to be 100% internally source, but in the midterm, about 50%. The reason we put 70% there is because we're not putting all of our products to Future M, it's because we'll be selling to other clients as well. So, our CapEx is aiming for 100% internal sourcing. But in the process, we could be selling to other customers and we could be contracting other suppliers as well. So that's why we put that number at 70% right now, and so our strategy remains steady. This is about Hyper NO Steel. Our capacity is different by which product, and the one that we need to supply the most right now is e steel or traction motor Hyper NO. That is definitely a need. At Pohang Steel Works, we had about 100,000-ton capacity there, and we've added 150,000-ton capacity last year. At the end of this year, we'll be adding another 150,000 tons. That will bring us up to 400,000-ton capacity system. And for transformers, I think, you were probably asking a question about the entire country. We don't see a huge increase in this demand. And this is an industry that's been booming recently. It's seen unexpected boom. So, grids and substations are in higher demand now, and this trend is going to continue globally. So, building these substations in Korea and exporting them, I think that's something we'll definitely be pursuing.
Unidentified Company Representative : Thank you very much for joining us today. And with that, we would like to wrap up the first quarter earnings call for POSCO Holdings. Thank you very much.
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