The boom in iron ore prices continues and South Korean steelmaker Posco on Monday provided a good explanation as to why that is happening – business is going very well indeed for one of the world’s major steel companies.
The company confirmed updated guidance issued in March that it earned $US1.39 billion in the March quarter on revenue of more than $US18 billion. That was almost double the $US635 million earned in the first quarter of 2020.
It was the company’s highest quarterly profit since the second quarter of 2011, as steel prices rose sharply due to demand outpacing supply and the surge in iron ore costs as well.
The world’s fifth-biggest steelmaker said first-quarter operating profit surged 120% as “profit from all sectors, such as steel, global and infrastructure, and new growth, improved”, including a 12% sequential jump in the price of its basic carbon steel product.
Posco buys a lot of iron ore from Australia and Brazil and hasn’t been averse to paying the near record prices of more than $US180 a tonne for the 62% fe fines product from Australia or the 65%.
It owns 12.5% of the Roy Hill project in the Pilbara (now the world’s fifth largest iron ore company) and buys more than 6 million tonnes of ore a year based on its shareholding.
It buys millions of tonnes of metallurgical coal from Australia as well – more than 25 million tonnes a year.
It has invested close to $5 billion in mining operations in NSW and Queensland (met coal) and iron ore in WA (Roy Hill). In 2019-20 it bought around $8 billion worth of mostly coal and iron ore (the value is running much higher this year because iron ore prices have more than doubled in the past year).
In an earnings call, Posco said it expected steel supply from Australia, Brazil and South Africa to rise in the second half of the year after falling in the first quarter.
It said steel prices were likely to stabilise gradually compared to the first half as demand was expected to fall slightly because of output cuts in China due to tougher environmental curbs.
Global steel demand is expected to grow by 5.8% this year, higher than the 4.1% estimate from last October, as economies recover from the COVID-19 pandemic, fuelling demand from the rebounding auto and construction sectors, the World Steel Association said this month.
The story is the same in China – strong demand, high economies of scale and solid pricing means record or near record profits and the ability to pay more for iron ore from Australia and Brazil, which means big profits for BHP, Rio Tinto, Fortescue Metals, Roy Hill and Vale from Brazil.
