Steel Demand Shrinking in 2H22
The author is an analyst of KB Securities. She can be reached at hyejung.jung@kbfg.com. -- Ed.
2Q22P consolidated OP of KRW822.1bn (+50.8% YoY) in line with market consensus
— Hyundai Steel posted 2Q22P consolidated revenue of KRW7.4tn (+31.3% YoY, +5.7% QoQ), OP of KRW822.1bn (+50.8% YoY, +17.9% QoQ) and NP (attributable to controlling interests) of KRW547.6bn (+63.4% YoY, +15% QoQ). OP beat our estimate and the market consensus by 4.7% and 1.0%, respectively. On a standalone basis, revenue came in at KRW6.5tn (+34.5% YoY, +7.6% QoQ), OP at KRW803.3bn (+66.1% YoY, +31.3% QoQ) and NP at KRW567.3bn (+106.5% YoY, +29.9% QoQ).
Solid earnings on wider steel product spreads led by ASP hikes through 1H22
— OP improved significantly YoY on wider product spreads led by increases in steel product prices and favorable overseas operating conditions through 1H22.
— 2Q22 steel product ASP came in at KRW1.345mn/mt (+39.2% YoY, +9.7% QoQ). Specifically, blast furnace ASP rose 39.9% YoY/10.9% QoQ with price increases for CR/rebar/steel pipe/automotive parts while electric arc furnace ASP rose 38.7% YoY/7.7% QoQ. Successful price negotiations for automotive steel sheet and shipbuilding-purpose steel plates in 1H22 led to price hikes while growing demand for oil well pipe since 1Q22 contributed to a markup in steel pipe ASP.
— Unit COGS climbed 37.0% YoY/7.0% QoQ to KRW1.128mn/mt. While 1Q22 avg. iron ore price (assumed to be reflected in 2Q22 input costs) fell 11.5% YoY, prices for coking coal surged 274.3% YoY, which we believe drove up overall input cost.
— Steel product spread is estimated to have expanded 51.6% YoY/26.3% QoQ to KRW217,000/mt.
Concerns over market slowdown amid shrinking steel demand in 2H22
— We believe steel product spreads will inevitably narrow in 3Q22, as global steel prices turned bearish from end-2Q22 (due to concerns over shrinking steel product demand amid interest rate hikes, resurgence of COVID-19) and prices of iron ore and coking coal to be applied in 3Q22 input costs are likely to rise QoQ.
— However, steel market conditions in China should improve, aided by falling inventories (i.e., cut to Chinese steel production to kick in from 2H22), entry into the favorable 4Q season and China’s economic stimulus measures. Also, cost fluctuations should ease as avg. raw material price stabilizes in 3Q22.