Posco Holdings Sees Profit Decline in 2024 as Steel and EV Markets Struggle
Posco Holdings, one of South Korea's largest conglomerates, saw its profits take a substantial hit in 2024, marking a sharp contrast to previous years' performance. The company, which operates through subsidiaries like Posco, Posco Future M, and Posco International, reported a consolidated operating profit of 2.17 trillion won ($1.5 billion) in 2024, a steep 38.4% drop from the previous year. This figure fell far short of market expectations, which had projected an operating profit of 2.65 trillion won, according to data compiled by FnGuide.
The significant downturn in profitability was largely attributed to a combination of external factors, most notably a downcycle in the steelmaking industry and weakening demand for electric vehicle (EV) batteries. Posco Holdings' pre-emptive restructuring measures, aimed at future-proofing the business, also contributed to the financial decline, with one-off losses amounting to 1.3 trillion won.
Revenue Slump and Declining Net Profits
The company’s revenue also took a hit, falling by 5.8% year-on-year to 72.69 trillion won, once again missing analysts' expectations of around 7.3 trillion won. The downturn in Posco's key industries led to a sharp 48.6% plunge in net profit, which dropped to 950 billion won from 1.85 trillion won in the previous year.
Despite ongoing efforts to diversify, such as expanding its presence in the EV battery sector through its subsidiary Posco Future M, the conglomerate could not escape the pressures of a slowing global economy and evolving market dynamics.
Posco's steel business, for instance, faced intense competition, with one of the main contributing factors being the overwhelming supply from China, which flooded global markets and drove down prices. This overcapacity negatively impacted the company’s ability to maintain its profit margins in its traditional core steelmaking business.
Challenges for Posco Future M in the EV Sector
Among the subsidiaries, Posco Future M, a key player in the production of EV batteries, was hit hardest by the global slowdown in electric vehicle growth. Slowing EV sales, especially in major markets like China and Europe, led to reduced demand for critical materials used in battery production, such as lithium and graphite. Additionally, regulatory changes, including the U.S. government's imposition of stricter controls on graphite from countries like China, further complicated Posco Future M’s business outlook.
Posco Future M’s operating profit plummeted a staggering 98%, dropping to just 700 million won, while its revenue fell by 22.3%, amounting to 3.7 trillion won. The severe profit loss from its battery operations reflected the broader challenges in the EV sector, where growth projections have fallen short due to global economic uncertainties and evolving regulatory landscapes.
Strategic Measures and Cost-Cutting Plans
To address the challenges posed by the downturn in both the steel and EV sectors, Posco Holdings has pledged to implement more stringent cost-cutting measures in 2025. The conglomerate plans to reduce capital expenditure, which amounted to 9 trillion won in 2024, focusing on minimizing unnecessary spending while investing in high-priority areas with the greatest potential for growth.
Posco Holdings has also signaled its intention to reduce investments in its battery business, although the company clarified that the cuts would not be drastic. Instead, the firm will refocus its investment strategy, concentrating resources on areas where it believes it can leverage its strengths and generate more stable returns.
Steel Industry Downturn and Challenges from China’s Oversupply
The steelmaking sector, a significant contributor to Posco's overall performance, has been facing considerable challenges, particularly due to global oversupply and declining demand in several key markets. Chinese steel production has remained high, exacerbating an already difficult market environment by flooding global markets with cheap steel, leading to lower prices.
This issue has been particularly problematic for Posco, which has historically relied on the steel industry as a major revenue driver. As the global steel market adjusts to the oversupply from China, companies like Posco have been forced to adopt more aggressive strategies to maintain profitability and market share.
Outlook for 2025 and Beyond
Looking ahead to 2025, Posco Holdings is taking steps to adapt to the evolving market conditions. The company is prioritizing efforts to streamline operations, reduce costs, and reposition itself in areas that offer more sustainable growth opportunities. While the steel market remains challenging, the company is betting on a more diversified approach, leveraging its position in the EV battery market, where it continues to make strategic investments.
Despite the turbulent 2024 results, Posco Holdings remains a key player in the global steel industry and a significant investor in clean energy and electric vehicle infrastructure. The company’s ability to pivot and refine its strategy in response to shifting market conditions will be pivotal in determining its future performance and ability to regain profitability.
