The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. -- Ed.
POSCO Chem has announced the establishment of a JV with OCI for the production of H2O2. In making the H2O2, hydrogen (raw material) will be extracted from COG generated by POSCO’s coke plants. While the new venture is meaningful in that the byproducts generated during the steel manufacturing process are linked to businesses that create added value, the impact on sales and OP will likely be modest for now.
▶Establishes JV with OCI to make H2O2 from 2022
POSCO Chem (003670.KS) has announced that it will partner with OCI (010060.KS) to establish a JV (POSCO Chem: 51% stake; OCI: 41% stake) to produce hydrogen peroxide (H2O2). POSCO Chem will supply hydrogen (raw material for H202) and capital, and OCI will be in charge of technological operations and sales. Production is targeted to begin from 2022, with output sized at 50,000 tons pa and annual sales estimated at W50bn.
Of note, POSCO Chem operates POSCO’s Pohang and Gwangyang Steelworks coke plants (on consignment basis). Coke oven gas (COG) generated at the coke plants is used to produce crude oil and coal tar, which are either sold to outside players or consumed internally. Via the establishment of the JV, POSCO Chem plans to extract additional hydrogen from COG and then supply it as a raw material for use in the manufacturing of H202.
▶Favorably view value-added steel byproducts, but earnings impact to be modest
We view the new venture as being meaningful in that the byproducts generated during the steel manufacturing process are linked to businesses that create added value. That said, we point out that: 1) the planned H202 production plant is not scheduled to be completed until 2022; 2) the earnings generated by new plant’s expected annual production of 50,000 tons of H2O2 (30,000 tons of electronic grade) should be relatively modest (sales of W50bn pa; OP of W10bn pa); and 3) POSCO Chem’s stake is limited to 51%. Given these factors, we believe the impact of the new JV on POSCO Chem’s EV will be limited for now.
Looking at the long-term picture, it is encouraging that POSCO Chem is adding linkages (COG → hydrogen → H2O2) to its value chain of steel byproducts (COG → coal tar → needle coke → rechargeable battery artificial graphite anode materials). Accordingly, we view POSCO Chem’s entry into the H2O2 market as evidencing the company’s potential to enter into a variety of business arenas related to byproducts generated during steel production processes. Moving forward, we will need to monitor if these byproducts, as well as the firm’s rechargeable battery materials, contribute substantially to its EV.