POSCO Holdings: How to Evaluate Steel and Battery Materials Together
Cash generation in POSCO Holdings’ steel business and investment recovery in battery materials follow different timelines. Learn to separate steel spreads, raw material prices, investment by business, and ownership structures.
POSCO Holdings’ steel and materials businesses have different earnings cycles, so evaluate their cash generation and investment needs separately. If cash generated by steel is invested in materials expansion, cash available for distribution can decline even when the group is profitable. Higher raw material prices do not benefit every business in the same way.
The lag between steel selling prices and actual input costs
Assess steel profitability through the spread between selling prices and raw material costs, but do not insert today’s iron ore price directly into the quarter’s cost of sales. There are lags between raw material purchases, inventory holding, production, and sales. Product mix and domestic versus export shares also affect profit. Check the scope of steel subsidiary results and consolidated results in POSCO Holdings’ IR materials, and review production, sales volumes, and inventories together. Profit improvements from inventory valuation effects may have different persistence from improvements generated by product sales.
Separate sales volumes from prices in materials
Falling prices for materials such as lithium may pressure profitability in resource development, while input costs and selling prices in processing businesses may adjust at different times. Do not reduce a price decline to the same earnings effect across the group. New factories may still need yield stabilization and customer qualification after capacity has been established. Rather than treating announced target capacity as immediate sales volume, build investment recovery assumptions that distinguish the start of operations, commercial sales, and normal production.
Align holding company value with the scope of consolidated results
If you value listed subsidiary stakes separately, do not include those subsidiaries’ operating values again in the consolidated core business valuation. Specify whether you use consolidated net debt or parent-only net debt. Comparing planned capital expenditure by business with actual payments can reveal why profit does not remain as cash. Recording how low and high raw material prices affect steel and materials separately helps assess whether business diversification actually spreads risk.
Worked example
Hypothetical example: If steel operating cash flow is KRW 5 trillion and steel maintenance and growth investment is KRW 2 trillion, steel leaves KRW 3 trillion in cash. If materials operating cash flow is negative KRW 0.5 trillion and capital expenditure is KRW 2 trillion, combined group cash remaining is KRW 0.5 trillion. Dividends and acquisition payments are not yet included. This hypothetical calculation shows why treating all KRW 5 trillion of steel cash generation as capacity for shareholder returns is excessive.
What to check
- Have you reflected the lag between steel product prices and raw material consumption?
- Have you examined materials prices and sales volumes separately?
- Have you avoided double-counting subsidiary stake values and operating values?
- Have you calculated cash remaining after investment by business?
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.