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Chips looking solid with autos and steel seeing profit drop

Vehicles are parked for export at a port near Hyundai Motor plant in Ulsan in this March 18 file photo. Yonhap
Vehicles are parked for export at a port near Hyundai Motor plant in Ulsan in this March 18 file photo. Yonhap

By Nam Hyun-woo

Korea's major exporting firms will suffer from heavier losses during the second quarter of the year hit by the further spread of COVID-19 in major markets that exporters are greatly exposed to.

Carmakers, oil refiners and steelmakers, described as "backbone industries" of Asia's fourth-largest economy, are expected to post sharp declines in terms of operating profits for the three month period, burdening the country's economic growth, analysts said Sunday.

Hyundai Motor, the country's top automaker, is expected to report a 358.2 billion won ($297.5 million) operating profit, down 71 percent, year-on-year, according to brokerages.

The consensus for affiliate, Kia Motors, is a 147.4 billion won operating profit, down 72.4 percent. The two brands' parts supplier, Hyundai Mobis, is also expected to see a 64 percent year-on-year drop in its second quarter operating profit.

"The protracted COVID-19 situation is producing a disappointing performance for Hyundai Motor," Eugene Investment & Securities analyst Lee Jae-il said. "Along with its U.S. and European plants, Hyundai's plants in Russia, Brazil, India and Turkey have also been hit hard by the pandemic. Solid domestic sales of its luxury models has partly offset continued weakness in its operations, helping it avoid the worst situation."

Hyundai Motor registered devastating numbers in vehicle sales in April and May. In April, the company sold 159,079 vehicles worldwide, down 56.9 percent. It slightly improved in May with 217,510, down 39.3 percent year-on-year, but analysts don't expect any noticeable recovery in June as the pandemic is forcing potential customers to close their wallets.

The situation isn't much different in the steel industry, which is also anticipated to report disastrous numbers in the second quarter.

Steel giant POSCO is expected to report a 320.8 billion won operating profit for the second quarter, down 70 percent, year-on-year.

"POSCO's overall steel sales in the second quarter is expected to decline by 1.2 million tons from the previous quarter, and its spread of rolled steel is anticipated to narrow," Hanwha Investment & Securities analyst Kim Yu-hyuk said. "Weakened demand will bottom out in the second quarter. It will take time to normalize after COVID-19 because demand is anticipated to wind back in major markets, except for China."

To streamline its spending amid the weakening demand, POSCO recently postponed a scheduled restart of its blast furnace No. 3 in Gwangyang, South Jeolla Province.

Rival, Hyundai Steel, has decided to sell off its electric furnace at its plant in Dangjin, South Chungcheong Province, due to poor demand. Hyundai Steel is anticipated to post a 27.5 billion won operating loss in the second quarter, swinging from a 232.6 billion won operating profit a year earlier.

Refiners are also forecast to hit bottom in the second quarter, as refining margins have turned negative amid low demand coupled with a prolonged crude oversupply.

From the third week of March to the second week of this month, the benchmark Singapore gross refining margin has been below zero, plunging as low as minus $3.3 per barrel in the first week of May. It went above zero in the third week of June, but the initial impact is still assumed to have mauled domestic refiners' earnings in the second quarter.

SK Innovation is expected to log a 372.4 billion won operating loss in the second quarter, down from a 147 billion won profit a year earlier. S-Oil is also anticipated to record a 58.75 billion won operating loss. Two other major refiners in Korea ― Hyundai Oilbank and GS Caltex ― are not listed, but they are also are assumed to have posted losses.

Propelled by health demand for home appliances and corporate server products amid the "work-from-home" trend, the semiconductor industry is projected to bounce back in the second quarter.

Samsung Electronics is expected to post an operating profit of 6.15 trillion won in the second quarter, down 6.8 percent. Eugene Investment & Securities analyst Lee Seung-woo expected the company's semiconductor operating profit will increase to 5.4 trillion won, up from 4 trillion won in the first quarter.


Vehicles are parked for export at a port near Hyundai Motor plant in Ulsan in this March 18 file photo. Yonhap
Vehicles are parked for export at a port near Hyundai Motor plant in Ulsan in this March 18 file photo. Yonhap

By Nam Hyun-woo

Korea's major exporting firms will suffer from heavier losses during the second quarter of the year hit by the further spread of COVID-19 in major markets that exporters are greatly exposed to.

Carmakers, oil refiners and steelmakers, described as "backbone industries" of Asia's fourth-largest economy, are expected to post sharp declines in terms of operating profits for the three month period, burdening the country's economic growth, analysts said Sunday.

Hyundai Motor, the country's top automaker, is expected to report a 358.2 billion won ($297.5 million) operating profit, down 71 percent, year-on-year, according to brokerages.

The consensus for affiliate, Kia Motors, is a 147.4 billion won operating profit, down 72.4 percent. The two brands' parts supplier, Hyundai Mobis, is also expected to see a 64 percent year-on-year drop in its second quarter operating profit.

"The protracted COVID-19 situation is producing a disappointing performance for Hyundai Motor," Eugene Investment & Securities analyst Lee Jae-il said. "Along with its U.S. and European plants, Hyundai's plants in Russia, Brazil, India and Turkey have also been hit hard by the pandemic. Solid domestic sales of its luxury models has partly offset continued weakness in its operations, helping it avoid the worst situation."

Hyundai Motor registered devastating numbers in vehicle sales in April and May. In April, the company sold 159,079 vehicles worldwide, down 56.9 percent. It slightly improved in May with 217,510, down 39.3 percent year-on-year, but analysts don't expect any noticeable recovery in June as the pandemic is forcing potential customers to close their wallets.

The situation isn't much different in the steel industry, which is also anticipated to report disastrous numbers in the second quarter.

Steel giant POSCO is expected to report a 320.8 billion won operating profit for the second quarter, down 70 percent, year-on-year.

"POSCO's overall steel sales in the second quarter is expected to decline by 1.2 million tons from the previous quarter, and its spread of rolled steel is anticipated to narrow," Hanwha Investment & Securities analyst Kim Yu-hyuk said. "Weakened demand will bottom out in the second quarter. It will take time to normalize after COVID-19 because demand is anticipated to wind back in major markets, except for China."

To streamline its spending amid the weakening demand, POSCO recently postponed a scheduled restart of its blast furnace No. 3 in Gwangyang, South Jeolla Province.

Rival, Hyundai Steel, has decided to sell off its electric furnace at its plant in Dangjin, South Chungcheong Province, due to poor demand. Hyundai Steel is anticipated to post a 27.5 billion won operating loss in the second quarter, swinging from a 232.6 billion won operating profit a year earlier.

Refiners are also forecast to hit bottom in the second quarter, as refining margins have turned negative amid low demand coupled with a prolonged crude oversupply.

From the third week of March to the second week of this month, the benchmark Singapore gross refining margin has been below zero, plunging as low as minus $3.3 per barrel in the first week of May. It went above zero in the third week of June, but the initial impact is still assumed to have mauled domestic refiners' earnings in the second quarter.

SK Innovation is expected to log a 372.4 billion won operating loss in the second quarter, down from a 147 billion won profit a year earlier. S-Oil is also anticipated to record a 58.75 billion won operating loss. Two other major refiners in Korea ― Hyundai Oilbank and GS Caltex ― are not listed, but they are also are assumed to have posted losses.

Propelled by health demand for home appliances and corporate server products amid the "work-from-home" trend, the semiconductor industry is projected to bounce back in the second quarter.

Samsung Electronics is expected to post an operating profit of 6.15 trillion won in the second quarter, down 6.8 percent. Eugene Investment & Securities analyst Lee Seung-woo expected the company's semiconductor operating profit will increase to 5.4 trillion won, up from 4 trillion won in the first quarter.


Nam Hyun-woo namhw@koreatimes.co.kr

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