Hyundai Steel Faces Double Whammy of Weak Earnings, Labor Dispute

SEOUL, Oct. 20 (Korea Bizwire) — Hyundai Steel Co., South Korea’s No. 2 steelmaker, is facing a double whammy of a slump in its earnings and a labor dispute, sending its stock price to a multiple-month low, industry observers said Sunday.

Hyundai Steel closed 0.28 percent lower at 36,200 won (US$30) on the Seoul bourse on Friday, a 10.8 percent decline from 40,600 won two months ago.

Compared to its 52-week high of 52,200 won on Jan. 31, Hyundai Steel stocks have dropped more than 30 percent.

Shares in Hyundai Steel advanced 1.51 percent on Monday following the news that the United States and China came to a partial deal in their trade talks, but since then they have fallen for four straight days.

Local analysts said the recent slump in its stock price is due to Hyundai Steel’s grim third-quarter earnings outlook.

Some have even predicted that Hyundai Steel will swing to a net loss in the July-September period, with operating profit plunging around 10 percent compared to a year ago.

The company is scheduled to unveil its third-quarter performance on Oct. 29.

“Increased fixed costs and decreased commodity-product spread might have been the main reasons for the poor third quarter earnings,” said Kim Yu-hyuk, an analyst at Hanwha Investment & Securities Co.

Kim predicted Hyundai Steel will suffer a 10.8 percent on-year drop in operating profit for the third quarter.

Hyundai Steel already saw its operating profit plunging 33.5 percent on-year to 445 billion won in the first half of the year, due to a surge in prices of key commodities like iron ore.

Adding to this is strikes by the labor union, which has been at loggerheads with the company over wage issues. The two sides have held more than 10 rounds of negotiations since June, but have yet to find common ground.

Some 5,000 unionized workers at Hyundai Steel staged a 48-hour strike from Wednesday to Friday morning, causing production disruption at three plants.

The damage from the strike is estimated at around 100 billion won, according to the company.

With the latest headwinds, local brokerages are now cutting their target prices for Hyundai Steel shares and their earnings forecasts for the company.

Mirae Asset Securities Co. recently lowered its target price to 48,000 won from 59,000 won, while Samsung Securities Co. trimmed its own to 47,000 won from 52,000 won.

NH Investment & Securities Co. revised its estimate on Hyundai Steel’s 2019 earnings, lowering its sales forecast to 20.5 trillion won from 21.5 trillion won, while cutting its operating profit outlook to 653.8 billion won from 886.5 billion won.

“If the union continues to stage strikes, it will affect Hyundai Steel’s production and sales,” said Byun Jong-man, an analyst at NH Investment & Securities.

“The company is in negotiations with its main customers over a price hike in automobile sheets and steel plates for shipbuilding, but it appears that nothing has been confirmed.”

Hyundai Steel hopes it can make a rebound in the fourth quarter, as raw material prices have recently stabilized.

“We hope we can reach a better price deal with our customers,” said a Hyundai Steel spokesman. “As for wage negotiations with the union, we’ll resume talks next week to reach an agreement.”

(Yonhap)