POSCO Holdings - Earnings Call - Q2 2025

Transcript

Seung Jun Kim (Head of Finance and Investor Relations)

Hello everyone, we'd like to begin the POSCO Holdings Earnings Call presentation. Thank you all for coming. Today we will have a presentation from POSCO Holdings first, ``and then we will have a Q&A session with all those in attendance. For those who want to ask a question, please press star one. Let us now begin the earnings call for 2025 second quarter. Hello everyone, I head up Finance and Investor Relations at POSCO Holdings. My name is Seung Jun Kim. As you have already seen, I'd like to first begin by thanking all of you for taking time out of your busy schedule to attend this earnings conference call. As you know, the past second quarter was marred by the intensifying global tariff war that began early this year. It was a time that saw incremental uncertainties more so than ever before.

Regardless of the hardship and challenges, POSCO Holdings did its best to generate sustained growth. As a result, our consolidated revenue hit KRW 17.6 trillion, operating profit was KRW 610 billion. By key business area, we observed noticeable improvement in steel. In both local and overseas steel businesses, quarter-on-quarter sales volume grew to push up revenues. With lower prices of iron ore and cooking coal, mill margin improved, helping to grow our operating profit. Most notable is POSCO Holdings' second quarter operating profit margin rate of 5.7%. Taking the fourth quarter of 2024 as the low point, we've been recording growth for two consecutive quarters. Moderate improvements in the domestic market are cited as the reason for mill margin growth, but I believe there's more. We have added efficiency to our facilities to improve cost structure. Also, energy and raw materials ratios have been cut.

We've introduced AI, so this is the outcome of multiple efforts that have come together. In steel, despite the equivocations in the global tariff policies, I dare to be cautiously optimistic that we will sustain these profit levels into the third quarter. Improving efficiency is a project that is ongoing offshore as well. We've designated POSCO Zhangjiagang Stainless Steel, or PZSS, a stainless steel production subsidiary in China. Detailed negotiations are underway for the sale as we speak. Established in 1997, PZSS has consistently performed. However, due to oversupply from Chinese competition and local Chinese government policies to limit stainless steel production volume, we have been registering sizable deficits since 2022. Once the negotiations and legal procedures are completed, the PZSS subsidiary, which continues to remain in Reg Link, will be removed from our consolidated account.

Rechargeable battery materials operating companies completed two new plants at the end of last year. They are both in ramp-up stages. Due to initial operation cost increases and falling lithium prices, the size of the deficit in the second quarter will grow. However, we don't believe the current losses will increase any further. We're on track to take steady steps toward customer certification, commercial production, and product sales. We're on track. Additionally, in this market, this is an opportune time for lithium business. Yesterday at POSCO Argentina, there was an LOI signed with a Canadian company for joint investment, and the size is $620 billion. We will be taking mining rights in a mine, juxtaposed to our Argentina mine.

Because of this close proximity, should this be successful from an operational perspective, I think we will be able to generate a lot of synergy, and there's a lot of upward market incentives that we'll be able to take advantage of. From now on, I'd like to ask our IR Office Leader to report the details of our earnings report.

I'd like to now go over the earnings for Q2. The consolidated revenue was KRW 17.556 trillion and the OP margin was KRW 0.607 trillion. After bottoming out, we have been gaining two consecutive quarters of growth. The EBITDA was KRW 1.6 trillion, and the first half cumulative CAPEX recorded KRW 3.1 trillion. Net debt, due to investment and working capital management and cash injection from portfolio management, decreased a little bit QoQ. By segment, steel operating margin recorded 35.6% of increase to a quarter of KRW 610 billion. As was just mentioned, the OP margin for POSCO rose from 3.9%-5.7%, and overseas steel also improved. In the rechargeable battery materials, the lithium battery price fall and last year's ramp-up of the two lithium factories that were newly built last year led to a larger deficit. In infrastructure, POSCO International showed robust performance.

Nonetheless, POSCO E&C's overseas project incurred additional cost, and there was a bit of a marginal decrease. Page five. POSCO has been implementing restructuring of the non-core assets and underperforming projects, and we will be able to generate KRW 1 trillion worth of cash flow. In the first half, KRW 350 billion of cash was attained, and in the second half, we're going to generate additional KRW 1 trillion. Let's look into each of the subsidiaries. First of all, POSCO. POSCO's OP margin ratio recovered to 5.7%. If you look at the selling price for the quarter, about KRW 1,000 per ton fell. If you look at the reasons, first of all, the domestic price recovered a little bit, but due to the stronger won, the export price fell, which led to the overall selling price downfall.

The raw materials cost also fell, so the mill margin eventually improved, and the LNG unit price also fell, so the fuel cost decreased. POSCO's cost-cutting efforts are paying off. Overseas steel also increased QoQ. If you look at Indonesia's PTKB and Vietnam's PY VINA, the sales channels have been diversified, and the local purchasing has also increased, leading to the cost control measures. However, PZSS also operated a profit loss of KRW 33 billion, so the deficit QoQ has also increased. Next page, POSCO's structural cost innovation projects are continuously ongoing, as you know very well. After promoting proactive restructuring, for example, closing down of the low-efficiency facilities like steel making line one and wire rod line one, POSCO is seeking optimal material balance to improve efficiency by developing cost-cutting technology to decrease the process load.

We are also collaborating with our suppliers and discovering new low-grade materials and minerals to enhance its use ratio to cut costs. Also, Pohang and Gwangyang steel factories are adopting AI and automation, thereby succeeding in accelerating the transition to intelligent factory. We succeeded in fully automating the molten steel pretreatment process. We have been cutting process time and raising yield, and we have applied technology enabling the auto control of optimal target speed. We have been able to minimize production delay and achieve increased production of more than 10 tons per ton. All of these efforts are leading to overall competitiveness and the profitability going forward, and POSCO remains committed to these initiatives. Next page is about R&D. We have been developing high-value-added steel products.

As you know, POSCO has been very committed to these initiatives, and in 2013, the high manganese steel for cryogenic use was first developed, and it went through registration to various organizations, and last year it was applied in the Gwangyang LNG terminal. In April this year, we exported the technology for the first time, and we are gaining our leadership in the market. Although small, this kind of high-value-added products going forward are going to grow further. We will be meeting the needs of the market and the customers and promote purpose-led new product development and diversify our product portfolio. Now on to the HyREX technology. This is a long-term strategy that we are promoting. January last year, it was designated as a national strategic technology, as we had already mentioned, and we opened a HyREX development center inside our factory.

In June this year, POSCO passed the MoTES pre-feasibility study for the HyREX demonstration project, and we have been successfully able to lay the ground for commercialization technology development. This demonstration project is going to cost around KRW 814.6 billion during the duration of the project from 2026-2030, and the government is funding KRW 308.8 billion. With that, we'll be able to have the commercialization technology phase by phase. Let's now go on to the RBM.

Next is POSCO Future M. Because volume of high-nickel CAM sales dipped against the previous quarter, plant utilization rate has fallen. At the same time, the Gwangyang precursor plant began operation in second quarter, incurring initial ramp-up costs, adversely impacting our profits. In anode active materials, or AAM, while volume of natural graphite AAM sales increased against the previous quarter, artificial graphite AAM has recorded inventory impairment loss. Page 10. Page 12, sorry. In business activities in the RBM business, rechargeable battery materials. First of all, from 2016, we have been developing DLE technology, and we wish to embark on a demonstration project. As you're aware, DLE process is an important technology to extract and process lithium. We've already gone through a pilot project where we've tested our technology.

In the state of Utah this time, we plan to build a demo plant on the site owned by Anson Resources that owns some mining rights to a brine lithium mine. With whom we have signed an MOU, here we will test the possibility of commercializing our DLE technology. Secondly, a 45,000-ton capacity precursor plant completed in June by POSCO Future M. We're internally building out an intermediary plant here. From raw materials to semi-products and all the way to cathode active materials, we'll be able to internally build out this process. Three of our RBM business entities raised that paid-in capital. KRW 1.1 trillion for POSCO Future M, PPLS KRW 400 billion, and KRW 328 billion by the parent company of POSCO, HY Clean Metals. In July, we also entered into a major agreement with a key Japanese battery maker for AAM materials. Next is POSCO International.

With increased cost recovery ratio at the Myanmar gas field, and because we also have to consider seasonal factors, we need to be able to look at the same period last year, so there was about a 20% decline. There's strong profits in the materials business, but in power generation, because of the lower unit prices, we have suffered some losses here. Page 14, POSCO E&C. The Malaysia Power Plant and Poland's incinerator. These projects comprise some of our overseas projects that have incurred additional costs, turning the books into red ink. The government complex development project in Sutchu District and the LNG terminal project in Thailand are new projects that we have won that brings our order amount in the first half of the year to KRW 10.2 trillion. This concludes our brief earnings report for POSCO Holdings, and now I'd like to move into the Q&A.

Thank you for your attention. We will begin the Q&A session. If you'd like to ask a question, please press star one. If you want to cancel your question, please press star two. The first question will be from Hyundai Motor Securities, Park Hyun Wook.

Hello, my name is Park Hyun Wook. Thank you for giving me an opportunity to ask a question. I have about three questions. The first question is regarding the steel market. In the second half, you're going to have less production in China, and also there's going to be less export. There are the anti-dumping tariffs being imposed in cold-rolled steel, so I think that's going to impact our company. How does POSCO view the second half market? There's strip building and automotive industry, so how are your price negotiations going about with these different industry players? In the overseas, you have the Indian investments in the joint venture, and you did mention that you're going to complete the investment by 2031. Can you give us an update on the current status? After the Liberty Steel Wiler acquisition, are you also interested in the Australian business as well?

Do you have a percentage target that you have in mind? Recently, the lithium price was from about KRW 8,000 to it went up to about KRW 10,000, and we believe that there is also going to be a rebound from the the price of lithium hydroxide. How do you see this market developing?

Thank you very much for your question. Regarding your first question, I think the Head of the Marketing Office can answer, and the second can be responded by the relevant department head, and the third by the Energy of Head. First of all, regarding China's decrease in production, it's been in the news for quite a while, but it has not really seen fruition as yet. In July, we have seen some news reports that in the second half, there is going to be some decrease in production in China. The Chinese domestic production and domestic demand has increased. That's going to reach us in about two months, and we believe that that's going to have a positive impact on POSCO's profit in the second half. We believe them to be a positive impact.

For the hot-rolled sheets, we will go from deficit to a profit, and this is an opportunity for us. Since the preliminary rulings were provided, we are looking for final rulings by the end of the year. For this to be accounted for in our books, it will take until the end of the year. In automotive and shipbuilding user industry negotiations, you asked a question about that. In both businesses or industries compared to other industries, they are at an advantage. We were quite concerned about the tariff negotiations, but that negotiation has gone very well as well. I'm optimistic. In the automotive business, because of the raw materials cost fluctuations, we do need to enter into negotiations. There are fluctuations; it's going up and down. I believe the second half will not be too different from the first half in terms of what we negotiate.

In shipbuilding, the impact of AD tariffs has to be considered. With that consideration, we believe the price needs to be adjusted slightly upward. That's our position. Because the raw materials prices have dropped, they are asking that we keep the prices where they are. The change will not be huge.

I'd like to now go on to the second question regarding the investment. First of all, the Indian JV. There are working level discussions taking place currently, and we have been looking into the site and the size of the JV. We are in the process of fine-tuning out the details. We did target for 2031, and that's still valid. When it comes to the environmental feasibility study and also the site, there may be some variables going forward, but for now, everything is going as planned. Regarding the Reverties Steel, Whyalla Steelmaker being acquired by POSCO. Regarding this possibility of an acquisition, the Whyalla has various different opportunities that we are looking into, and we are internally reviewing the possibility.

The steel mill itself is about 1.2 million tons, and there might not be that much of a synergy that's possible, but there are mining opportunities which we find quite positive. It has its own mine, and also there are lots of renewable energy possibilities. In the mid to long term, low carbon sources like DRI and HPI could be impacted positively. We are looking quite positively into the possibility of this kind of acquisition. You also asked for the mid-term production. About 5.1 million ton is the target, but 2031 is the completion date for the Indian JV. India will be about 5 million, and Indonesia with the KPDKP will be finalized by that time. In the U.S., we have the electric furnace. If you look at the overall production plan, it would be something like about 10 million ton.

As of 2035, it'll be around 15.7 million tons, and then there will be a bit of a decrease if we take into account the equity shares. Now the third question. You asked about the question about the lithium. The EV market is growing, especially in China, and the LFP-led growth is quite noticeable. The LFP is rebounding fast, we believe. Also, the Chinese government is imposing quite strong sanctions. If you cost the entire value chain, you see not just the refinery, but also the other parts are also rebounding as well. We believe that the price is not going to fall below $8. Usually, the Chinese LFP will rebound first, and then the LH will follow. We believe the LH will eventually rebound as well. Maybe.

I don't think it's going to go below the $8 mark, but this year we believe that it's going to be the latter part of the $9 mark. Recently, with a low price, eight entities announced their lithium prices. Basically, if you look at their opinion in 2026, we believe that maybe it will be more than $10. I don't believe that the rebound is going to be abrupt, but there is going to be a phase and increase in the lithium prices.

Next question, please. The next question will come from IM Securities, Mr. Kim Yun Sang. Please ask your question. Hello, my name is Kim Yun Sang from IM Securities. I will ask three questions as well. First of all, our main export destination, U.S. and European market projections and sales projections. In the United States, because we have 15% tariffs but 50% on steel, since then we've been losing a lot of volume and demand. There is a growing market in the United States. What are your plans about how to take advantage of the market situation? In that same vein, about 27 million tons of steel will be replaced, and this is going to play against the European markets. What do you think about the European and the U.S. markets and how they will impact each other?

With these sales strategies in the two regions, in the first half, sales volume remained in the early 8 million range, but in the second half, we're hoping for a little bit of a recovery. How do you see those numbers developing in the second half is the other part of that question. HR anti-dumping tariffs and preliminary rulings, I wonder if this is going to impact your policies going forward. Where are your destinations? I'm sure that there are certain industries that you're serving in the U.S. market, for example, but because these using industries are going to suffer a little bit, what are your price policies going to be? That's it. Marketing Strategy Office Chief. This is a very comprehensive series of questions. First, the 50% steel tariff from the United States, will that remain? I think that was the first part of your question.

Many believe that this is going to be hard to sustain. The Trump administration has expressed that strong commitment. Perhaps this year and until the first part of next year, yes, 50% will hold. That's what we're expecting. U.S.-bound revenue, it's only about 2% of our total volume. It remains within the 2% of our volume. Even if we continue to sell to the United States and even paying tariffs, we will be able to make a small profit. Will we have to now consider other regions? I think that volume is going to be very minimal, maybe 10,000 -20,000 tons. Should the tariffs fall, we'll maybe be able to sell a little bit more, but the impact is not likely to be huge. There are customers, local customers, who take steel from us to sell to the United States, and they are going to be impacted the most.

Representative among them being the automotive industry, but they've had a pretty favorable tariff imposed. I think that's a win situation. There are also other secondary steel product manufacturers that are also going to suffer. Once the price increases, yes, exports will become difficult. When other products have difficulty entering our market, we'll be able to take advantage of the local market to raise our prices here too. Rather than partitioning demand through distribution for those who have higher demand, I think we need to be able to come up with a price strategy that is going to be sustainable and competitive. We don't have a complete plan on that yet. As the anti-dumping measures rulings continue to finalize, once they become finalized, I think we'll be able to give you a more definitive policy.

What we can tell you at the moment is we need to be able to come up with a price policy that keeps our using industries competitive. In the EU market, it's a similar situation. Those that will not be able to go to the U.S. market, yes, I think they will flow into the European market, but the quota will be pretty rigid. That is why I don't think the volume increase is going to be huge into the EU. Of course, we have limits to how much we can export to the U.S., and because of these factors, price will be suppressed. We'll be able to keep our prices pretty competitive in other regions, such as in Southeast Asia. About 2 million-2.5 million tons is the volume we're selling to other regions. When CBAM goes into full force, we will be operating our EAFs.

I believe we will be able to keep our current levels of production and sales, maybe even increase it by a little bit. I hope that answered your question. We'll take the next question now.

The next question will be posed by Lee Eun Young from DBS Securities. Please go ahead with your question.

Thank you very much for giving me the opportunity. I would like to ask a question about the PZSS selloff. First of all, I heard in the news that you'll be selling it to a Chinese company. What are some of the conditionalities and also the price of the sale? As a result, is there going to be some kind of an operating margin that's going to be recorded as a result of the sell-off of this PZSS? If so, what's going to be the amount that's going to impact the operating profit margin? The second question is, what products are recording a deficit? I think that despite the market circumstances, I think POSCO is doing relatively well. What are the steel products that are not doing so well and recording a loss? The third question is, there are some news regarding the increase of the capacity in Korea.

What are your plans? The second EAF in Gwangyang, when is it going to be commercialized, what are the future plans, and what's going to be the period for the ramp-up? You have the Gwangyang EAF in 2026. I know that the number eight and CGL is going to be promoted also in Gwangyang. Can you also give us an update on those projects? Thank you very much. First of all, let me talk a bit about the PZSS sale. Currently, there's some progress, and we are now in the process of making the discussion of the final issues regarding the acquiring company. I won't be able to give you the details about the actual numbers. Please look forward to your understanding on that. The second question was about the investments that we are making due to the deficit.

There were some dividends coming from the PZSS, and there's also some of the cash flowing from the divestment. I think we'll be able to cover the loss that's going to be incurred. I think that's about what I can say at this point in time. If the PZSS goes smoothly, then in the first half, we'll see the final results from the selloff. We do have the government approval, and we will have to register the consolidation. It's going to take a few months, like six months, for that to actually be finalized. Of course, depending on how that plays out, the timeframe can actually be shortened. Regarding the question about the PZSS, we are negotiating with the JV partner and also the negotiating partner. When things are finalized, I think we'll be able to provide the details to you at that point.

I'm from the Head of Marketing Strategy. What steel products are at a deficit was your question. In the second quarter, I would say nearly none. During the first half, we had some of the products that were losing out. We had shut down some of the facilities, and a lot of the deficits turned around to the black. There are hardly any products, especially in the steel plates, that are recording a deficit. For now, there are hardly any steel products that are recording a deficit. Hello. I'm going to be talking about the EAF at Gwangyang. Everything is going as planned. It's about 41% currently, and we will be starting operation in 2026. We will be able to meet the demand and create new demand by that time.

Electrical sheets plants, those have been completed, so we are ramping up. The Gwangyang number eight CGL plant, we are still surveying this but have made no concrete decisions. There are various scenarios that we are investigating. We will look at the aging situation, so we have delayed our decisions at this point. We'll take the next question. We're ready for the next question from Eugene Securities. Eugene, hello, everyone. Lithium certification progress, I'd like to know how that's going on with each customer, and the battery volume, if you could share any of the confirmed volumes by each company. Secondly, POSCO E&C has had some safety incidents. How will these damages, when will these damages be accounted for? Will that be in the third quarter, and what would be the size of that impact? I'd like to answer the first question.

PPLS in Gwangyang has completed certification by three customers, and sale has begun. That's plant one. The second plant is going into certification, and the first stage of that certification is almost complete. In Argentina, one plant is in ramp-up and the other is under construction. The one that's in a ramp-up stage, we have not gone to full plant operation yet. Once we have significant volume that we can produce, that's when we will go into certification stage. At the Argentina plant, we are not at commercial grade. In Gwangyang, for three customers, we are on a smooth sale with customer certifications by three companies. I'd like to answer that second question. I'm in charge of finance. I believe you are referring to the POSCO E&C safety incident that happened at the Shinansan line that happened on 11th of April.

We are the lead contractor on this construction project that's happened in construction zone two, and this has caused an extension of time on the construction schedule because there is a safety investigative commission that is conducting the investigation. We will not know the full impact of this incident until all of that investigation is completed. Once they have the investigative report, we'll be able to assess better what that impact is. As you mentioned, yes, the investigative report will probably complete in the third quarter, and that will probably not impact the third quarter. I believe it will impact our fourth quarter. First, we really want to focus on the recovery and restoration as well as to process the complaints. We will have to wait and see exactly how much the damage is and how much can be covered by our insurance. Thank you.

Next question, please. Next is from The Hunt Two Securities, Chen Mun San. I'm participating after a long period. There are many concerns by the investors, but it seems that the steel industry is rebounding. I'd like to congratulate you in that regard. Right now, there are some projections regarding the cutdown in the production in the market. The Chinese government has set a plan. It's going to be the first year of its implementation. There are some expectations that China is not going to actually decrease the production, but actually to downsize the amount of steel mills it has in the market. What do you think? I think maybe my question is going forward a little bit too fast, but POSCO, if it's going to earn a profit from lithium, also would depend on how much cash cost you have and how much it's going to go down.

What's the kind of price level you have in mind for POSCO Argentina to become profitable? For you to be able to say that POSCO Argentina is going to be more competitive, what's that kind of adequate price level that you have in mind? I'm Head of the Marketing Strategy. First of all, to deal with your first question, is it going to be the cut in production? There have been various news reports since last year, and as I had mentioned before, whether it be restructuring or whether it be cut in production, there are lots of projections and positive expectations. For example, President Xi had overtly talked about the overcapacity in the market, and the Chinese Steel Association had actually made a proposal to the government regarding the cutting down of the production. In whatever way, we believe that the production capacity is going to decrease in China.

There are high hopes for that kind of initiative in China. In China, there are more and more private steel makers, and before, if the government said something, things are going to happen, but that's not really the case anymore. There are higher hopes for the downsizing of the production, but when it's going to be and how it's going to play out is not yet known. We are just continuing to monitor the market. Let me now answer the question about Argentina. Since October, Argentina, POSCO Argentina has been ramping up. The sellers are different. Korean sellers are different, and even within Argentina, the Muerto Muerto and the other sellers are different as well. Ramping up usually takes about a whole year, according to our estimates.

We believe that we're going to be able to complete the ramp-up, and by September and October, I think the ramping-up process will be finalized. By that time, we'll be able to come up with exact cash costs. For now, things are rather uncertain, so I won't be able to give you a definitive number. If it goes beyond $9, it's going to be more beneficial to produce more.

Thank you. We'll take the next question. Next question is from NH Investment & Securities, Mr. Lee. Please ask your question. Hello. I'm from NH Securities. My question will be simple. It's about steel. The volume bound for Canada and Mexico, I wonder if you can share that volume. Secondly, PPLS. The utilization rate comes out to about 40% based on second-quarter numbers. You mentioned that the first plant is fully ramped up. Once the second plant is online, this utilization rate will go up. What do you predict will be the timeline for when both plants will be up and running? If this goes on schedule, are you going to be able to climb out of your deficits? The second question is pertaining to which plant? Are you talking about PPLS? Yes, that is regarding PPLS. I'd like to address PPLS.

Plant one has been certified. The second plant is scheduled to complete certification by October after it's fully ramped up. Looking at the current prices, full operation of the plant is only going to generate losses. Unless we're able to win more orders, we have no intention to keep the plant at full operation rates. We will be more flexible in how much of the plant we operate. Marketing Strategy Chief, I can't tell you exact numbers by country, and these numbers vary year to year. We do sell about ttwo million tons to North America each year. Excepting U.S. and Canada, that number is very small. To Mexico, because we have our own subsidiary there and for processing centers that supply to the automotive companies, we do sell about one million tons to Mexico.

Next question, please. Next question will be made by KB Securities, Chair Yong Han. Please go ahead with your question. Hello. I'm from KB Securities. Thank you for giving me this opportunity. I have two questions. The first question is regarding the CapEx investment plan. Is your early year plan unchanged? You have talked about the Argentina plans going through the M&A. I'm asking because your CapEx investment is projected to grow from my perspective. Is there a possibility that the FCF may record a loss? If the current price is sustained in the upstream, is there a possibility of you increasing your capital? Regarding the CapEx investment plan, in the early part of the year, we planned for KRW 8.8 trillion. For now, the plan has not changed. For the Argentina M&A and the investment into Hyundai Steel, yeah, they are reflected in our plan already.

For now, we don't see this, we don't think there's going to be a big change from the plan that we had made in the early year. The possibility of the FCF deficit, the EBITDA is not going to cover that. I'm not sure how I should explain this. Maybe I should answer the second question. Recently, the POSCO Future M and the PPLS.

Paid-in capital raise was about KRW 6 trillion. By raising this capital, we wanted to make sure that this was the last one. We didn't want to have to go through another paid-in capital raising event. As long as the distribution cost and price holds for the next two years, additional paid-in capital will not be happening. What was excluded from the recent capital raising event was POSCO Argentina. If Argentina needs funding, because Argentina has some borrowing capacity, we will be able to take some loans locally. Because we discussed some potential acquisition of Salt Lakes, once that happens, POSCO Argentina will be the entity acquiring those additional assets. Because they were not part of this part of the capital raising event, they could potentially do so in the future.

Regarding the first question, I would just like to say there was a question about the possibility of a deficit of this year's FCF. Are you talking about the EBITDA deficit? If that's the case, the investment is a little bit over the EBITDA, but we are making divestments, and we'll be able to cover the gap. We won't be able to say you can't really say that we'll be able to be increasing the borrowing because of the enlarged gap. Let's go on to the next question.

Next question is from Kyum Securities, Mr. Lee. Please ask your question. Hello everyone. I'm from Kyum Securities. I have one question. NSC acquired USS. It took about a year and a half. The cost.

Price tag was about KRW 20 trillion. What is your assessment of this acquisition? Since the acquisition, from a long-term perspective, how do you assess the impact it may have on POSCO? What are your projections? I know this is a very broad question, but what are your assessments? Steel business management. Leader. Here, whether it's the Japanese steel company or POSCO, we have similar global investment strategies. High-growth market or high-profit market. Among advanced countries, the U.S. is the only high-growth market. The United States is trying to bring back the renaissance of manufacturing into the country. There is a lot that is going to go on in the United States. The decision of Japan to move into the U.S.

market, because there were limitations on how much they would grow locally with local companies, I believe the infusion that Japan brings into this deal is going to help. The conditions of the deal that include the golden stock and other terms, because so much cost has gone into this arrangement, I think we need to wait and see exactly how much profit they'll be able to generate. Because the U.S. is a high-growth market, POSCO Holdings has been looking into the U.S. market for a very long time and from a long-term perspective because they will be adding more demand in premium products. Given that our strength is in automotive steel sheets, we are looking into setting up a production plant locally in the United States as well. As mentioned earlier, in India or Indonesia, which we see as high-growth markets, we will continue to look into additional investments.

I'm sure we're not alone. Other steel makers are also looking into opportunities in these high-growth markets as well.

Anybody with further questions, please go ahead. Next question will be made by Yuanta Securities, Lee Hyun Soo. Please go ahead with your question. Hello. My name is Lee Hyun Soo from Yuanta Securities. I have about two questions. First of all, regarding steel. I think the question was made before me, but I didn't quite get the answer. In the first quarter and in the second quarter as well, it seems that the sale was about 8.1 million tons, which was a little bit less than my own projections. I think the sales volume had gone down somewhat compared to the past. In the first half, it was 8.1 million. Do you think in the second half you'll see a higher volume? Connected to that question, if I remember correctly, in November, there was a fire in the Pohang number three that was caught on fire.

The news reports have said that it's going to start running from about September, October. I'm not sure the production capacity before the fire, but I knew that it was something like yearly two million. In the second half, are we going to see a higher volume compared to the first half? The second question is regarding the IBM. We had a valuation.

Usually in July, you have value day, but that time has come and passed. There were some forward guidances that you provided last year, and there were some numbers attached to revenue as well as EBITDA. Those numbers have changed significantly. I don't know if you'll be able to meet these numbers. In the second quarter, the deficits have increased. You did say that you expect this to go down. I like those projections, but once you start looking at all of these numbers and conditions, in the second half, looking at the second half and maybe from an annualized perspective, when do you see this turning a profit?

From the marketing strategy. First of all, regarding our sales volume, you asked about whether in the second half the volume is going to be more than 8.1 million. In the past, we had ramped up our volume, but we have divested from certain production lines, and we won't be able to reach our past maximum. We do believe that our numbers for the second half are going to be higher than our first half. In November, there was a fire, and the Pionex number three had stopped operation. Now the repairs have been done, and that's going to be finalized in about September. The capacity is not going to reach two million; it's going to be a little less than that number, but the production is definitely going to increase.

In the second half, especially in Q4, the FINEX number three will start producing, and then we'll be able to see those numbers being accounted for. Additionally, you have the FINEX number three in operation, and then you're going to also have the runoff gas, and that's going to also lead to more efficiency and cost-cutting in the energy sector as well. Let me talk about the RBM. You had the value day last July, and we did say that the nickel revenue would be about KRW 2.2 trillion and EBITDA KRW 0.5 trillion. I think it's going to be about 5% of a decrease. The production volume is going to decrease. We're going to maintain the 39,000, but when it comes to nickel, it's going to be about 45,000. 25,000 is going to—it was canceled in Gwangyang. In Gwangyang. In Gwang, sorry. There was a bit of that decrease.

In the case of nickel, next year it's going to be in the black. In the case of lithium, the EBITDA margin is going to be there, but the OP depends on the nickel prices, as you know well. Depending on the lithium price, the EBITDA is going to fluctuate.

Do you have any more questions? If no more questions, I would like to conclude the earnings call. To all the investors who participated today, I thank you. I'd like to officially close the earnings call for the second quarter of 2025. Thank you.