POSCO Holdings - Q3 2024

Transcript

Jeong Ki-seop (Chief Strategy Officer)

Greetings. This is POSCO Holdings Earnings Release Conference. Thank you all for participating. Today we will hear a presentation from POSCO Holdings first and then we will have a Q and A session with all the participants. If you would like to ask a question please press Star one on your phone. So now I would like to begin the third quarter 2024 earnings release presentation. Greetings. I'm CSO of POSCO Holdings. My name is Jeong Ki-seop. We have closed third quarter revenues and operating profits at levels very similar to the second quarter. However, steel price fell slightly deeper than we anticipated in rechargeable battery materials. Key raw materials prices continue to decline, creating a challenging business environment. These challenges notwithstanding, we try to stretch profits as much as possible, especially in steel WTP products.

Our high end steel products that make up 32% of our sales help to secure a level of profit margin that sustained POSCO's operating profit in battery materials. Lithium hydroxide price is falling below $10,000 per ton. Rapid price decline is exacerbated by the reverse lag created by the time difference between when they are bought and sold. This creates added challenge and disadvantage. In addition, our brine and ore lithium production plants lined up to complete construction. Anytime a plant comes online, they entail initial investment and operation costs that add to the overall burden of expenditures. However, some have recently been commissioned. The fact that these new plants have been completed and initial pilot operations have gone into effect without a hitch gives us reason to be proud that our lithium production technology and facilities have arrived production ready at commercial scale.

Before I give the floor to the head of IR for a more detailed presentation on our earnings, I'd like to take a brief moment to communicate the strategic alliance struck between POSCO Group and JSW Group, which was released yesterday in your deck. It pertains to slides 5 and 8 with JSW Group in India. POSCO Group has signed an MOU to cooperate not only in building an integrated steel mill in India, but also to extend that collaboration into rechargeable battery materials and renewable energy sectors. In steel, we're delving into the details of building an integrated mill in India with at least a five million-ton capacity. The new upstream plant will have 50-50 investment from POSCO and JSW Group with plans to focus on premium automotive steel products. We have been proposed two potential plant sites that we are currently examining.

In addition to the JV in steel, we're also discussing collaboration in rechargeable battery materials and renewable energy. While still early in our discussions, we're studying ways to collaborate on LFP type EV battery materials in which cost efficient manufacturing is an essential condition. This business partnership with JSW Group and our entry into upstream business in India have three strategic implications for POSCO Group. First, it is our response to the formation of steel market blocks around the world. Given the geopolitical risks and protectionist trade tendencies, the global steel industry supply chains are grouping into blocks. Hence, we must address this shift through localization in key markets. By entering the upstream business in India, we plan to move away from previous business strategies that focused on seeking growth centered on downstream process.

Instead, we wish to get to the growth market early and to build presence through upstream business. On page seven, we provide a brief overview on the Indian steel market. India is one of the fastest steel demand growing economies in the world. Per capita steel consumption in India is 90 kg, which is a mere 40% of the global average. Moreover, it is a market that is growing with strong push from the Indian government's promotion policies. On the other hand, the market share of the top five Indian steel makers is over 60%, signaling an oligopoly. Because the government protects its national mills, profit is relatively strong too. Finally, abundance of iron ore reserves promise ample supply of inexpensive raw materials. In 2009, POSCO set up POSCO Maharashtra or PMH, a downstream plant. We've defined our position in the market as a key automotive steel sheet supplier.

As of 2023, our market share in automotive coated steel was 28%, taking joint number one market position. Currently, more than 50% of our products are supplied to the auto industry. Because we've already acquired a good number of clients that use premium steel products. We hope that a new upstream facility in India will generate immediate synergy with existing networks and assets in the country, and this is the way we want to be able to build a larger market for our products. The second implication is partnership with a formidable local partner. On page of your handout, there's a brief description. JSW Group is ranked number one steelmaker in India by production volume. A joint venture with such a strong partner helps to mitigate local risk. Therefore, we believe our partner will help us to make our entry into the market faster and more efficient.

Entering into an overseas market in a more efficient way helps us to generate more profit wherever we end up. The third implication is in battery materials and renewable energy. We have strategic alignment in these areas for collaboration. JSW is known as a steel maker. However, they've recently acquired shares of MG Motor India and built a recycling business too. These actions signal aggressive investment into EVs through JSW Energy. The renewable energy business is expanding too. From these perspectives we find a great level of strategic alignment with POSCO Group's eco-friendly rechargeable battery materials business. Given the growing importance of manufacturing cost competence in the battery materials sector, India is rising in prominence, especially given its growing projections of EVs and therefore all the more important to have a local partner in doing this business.

To our investors and shareholders, I want to stress that due to a sluggish market, cost recovery continues to be delayed in both steel and the battery materials businesses. We're committed to continuing sound profit management and to seek growth trajectories in key businesses. This is how we promise to do our best to surmount the current crises. While we expand in these business areas, we're also committed to simultaneous restructuring of nonessential businesses and nonperforming assets. Through these efforts, our long-term goal is to enhance capital efficiency. Now I'd like to hand the floor to the head of IR who will deliver our third quarter earnings.

I'd like to discuss those consolidated results for the third quarter. Please go to page 4 of the presentation deck. Overall the third quarter ended at a similar level to second quarter. We recorded KRW 18,321,000,000,000 for this year's sales and operating income KRW 743,000,000,000. We made a lot of investments, a lot of efforts but because of rather sluggish performance in industrial rechargeable batteries and the initial cost of subsidiaries being reflected. That turns out to be the factor for the third quarter. We have sales and operating income for the third quarter at KRW 18,321,000,000,000 and KRW 743,000,000,000, and that's EBITDA of KRW 1,000,000,000,000 in the third quarter and we have now going into the sectoral outcome. Please go to the steel side. On the operating profit that was KRW 466 billion and that's down by KRW 331 billion from the previous quarter.

POSCO Steel posted an improvement of KRW 20 billion, recording KRW 438 billion, but because of the deterioration in the profitability of Chinese subsidiaries in Zhangjiagang, we have seen the sluggish steel demand in China resulting in the results. Infrastructure segment posted operating profit of KRW 449 billion, an improvement of KRW 20 billion, and profit improved at POSCO International due to high power generation profits. For POSCO Future M, because of the lower anode active material sales volume and losses in the cathode material, the profit shrank, and the POSCO Pilbara Lithium Solution began to reflect initial costs of production, including ramp-up of the POSCO Pilbara Lithium Solution and the completion of the POSCO Argentina. Next, I'd like to share with you the major activities in the third quarter. Mr. Jeong Ki-seop spoke about the strategic alliance between POSCO and the JSW Group in India and our successful entry into the Indian market.

Please go to page 9 for the completion of the POSCO Argentina Brine Lithium Phase 1 plant construction for the POSCO Argentina Brine Lithium Phase 1. This is upstream downstream process with a capacity of 25,000 tons of lithium hydroxide. It has been completed recently. Completion ceremony was held in Argentina. The initial production of the 200 tons of lithium hydroxide was successfully completed. We are currently going on with a ramp up process and from November we start the product certification process for the POSCO Future M and battery companies. Next on the upstream process of the POSCO Argentina Phase 2 with a capacity of 25,000 tons.

This will be completed in the third quarter next year and if the downstream process in Gwangyang is completed around that time, I think this will happen by the end of next year and we'll have a system of 50,000 tons of salt-based salt lake-based lithium brine-based lithium hydroxide production. The POSCO Pilbara Lithium Solution 1 Plant in Gwangyang is ahead of its production ramp up schedule by about 1/4 and is expected to be completed by the end of this year. In the third quarter the cumulative production will be 1,965 tons and we are stabilizing the production so we're inching closer to the stage of stable mass production. This is internal evaluation.

At the same time the product validation is nearly completion and we are pleased to announce that we recently signed a contract to supply 20,000 tons of lithium hydroxide for EVs in 2025 and this will be signed sometime in December of this year. For the POSCO future M battery companies. We are currently going on the certification procedure and we believe the additional supply contracts will be added in the first half of next year. By the end of this year as you know very well, we have a capacity of 21,500 tons a second plant to be completed. We are working very hard to complete the completion and currently we're going underground commissioning and this shows to be completed by December this year.

So, with this, the hard rock and the brine completed, we believe that we have a production base of 68,000 tonnes and 89,500 tonnes by the end of next year. More recently, we have seen the lithium prices coming down below $10,000 levels, and by the end of this year and next year we will have investments for the new plants and the product certification will take a year or so, and we are not going to be able to enhance the utilization and the rate very rapidly. So we have some fixed cost coming in. So it will take time for us to come to the normalized margin level. So we're trying to accumulate the mass production experience and also trying to make sure that we bring efficiency in the production.

We're setting our best efforts to come up with the best results, which also trying to advance the normalization lithium production. We're also working to secure key mineral assets at the time of declining lithium prices. As was reported by the media, you'll see that indeed the Altoandinos lithium project is going on. We were included in the shortlist in August, and negotiations are currently underway. We believe that by the end of first quarter the final candidate will be selected. For the Maricunga salt, the brine-based lithium project, we are participating in the bidding process. In addition, we also have like the hard rock-based lithium. This is also what companies are considering mainly in Australia and the United States.

Secondly, I want to mention that POSCO International has made equity investment in Black Rock Mining and this is going to be 60,000 tonnes of battery grade flake graphite. Next page. This is about the progress of restructuring program. The company has added five more restructuring targets on top of what we announced in July. So there will be 15, a total of 85 the low margin businesses and 70 core assets. We have 21 businesses and assets we have completed restructuring. This led to a freeing up of KRW 625.4 billion in cash. And this is as of the end of September. You'll be very curious what we have sold off. So some of them include heavy oil plant in Papua New Guinea and the regional steel processing center in China. So these are some of the low margin the production centers that we have owned in overseas countries.

These are low margin and these are not part of the core future businesses we have in mind. So we sold them. For the non-core assets I also want to mention the KB Financial Group investment where we have like a simple minor equity stake. We also have multi-purpose commercial building which is a non-core real estate asset that we held. So we sold these assets to secure more cash. On these points this relates to improving the efficiency of our asset management at the group level. As I've announced before, by the end of 2026 we'll be able to arrive at the target that we are starting. So we'll be able to come up with KRW 26 trillion in cash. This will be used for future investments.

And we'll make sure that there is like a stringent control of the management of these assets. Next, I'd like to talk about the company results. Please go to page 11. The first up is POSCO, the POSCO Steel. Production in the second quarter turned to be normalized. It has been reduced a bit and it's been returned to normal levels. And that comes after the number four blast furnace completion. This increased by 1.23 million tons from the previous quarter of 9.234 million tons. And correspondingly our revenue has grown to 9.479 trillion KRW. Although the profit improved due to the effect of lower fixed cost due to the increase in the production volume. So we have seen some improvements. And also you can see the raw material prices has also dropped. But the sales price this has reduced by 43,000 KRW per ton.

This is a larger decrease and therefore the gross margin is reduced slightly. Despite the difficulties, we believe that we have seen these sales improved slightly from the third quarter. For the fourth quarter you see that the raw material prices are expected to decline further quarter on quarter and production sales volumes are expected to increase slightly compared to the third quarter. In terms of the manufacturing cost, the fourth quarter turns out to be more positive than the third quarter. We see that real estate downturn in China continues and there are no concrete signs of reconnecting recovery. The sales environment is expected to continue to be challenging. The company has compared to other competing companies.

We have high proportion long term contracts for the higher value products and therefore we expect profits in the fourth quarter to be in line with the third quarter. But we are making every effort to secure profits in case the decline in selling prices continue. Please go to page 12. In the overseas steel business, we look at Indonesian mills, the upstream and also downstream processing mills in India and Mexico. They're improving their profitability by increasing the proportion of high margin steel plates. In particular for the POSCO Maharashtra, the Indian downstream subsidiary is making structural progress in diversifying sales mix towards a high end of the automotive steel and the proportion of automotive steel sales is reaching 52%. In terms of the mix, we're looking at structural improvement.

However, I want to mention that if you look at the, and the Chinese subsidiaries are looking at lowering selling prices caused by the deteriorating market conditions, and therefore the overall profit and overseas steel decreased quarter-on-quarter. Next is on the POSCO International. Sales and operating profit increased by 1.2% respectively from the previous quarter. We have seen in the energy sector profit decrease due to a decrease in the cost recovery ratio of the gas fields. But we are able to as a result lead to a profit in the same level as the previous quarter. On the POSCO E&C, we look at the ongoing crisis in the construction market. So we're prioritizing on securing financial stability including cash flow oriented management. We wanted to maintain the profitable level.

In the third quarter in line with the group restructuring plan, we sold non-core assets and that led to more than KRW 100 billion in cash and improving profit by KRW 32.9 billion. Let's go to POSCO Future M now. Sales increased slightly from the previous quarter. But if you look at the sluggish business in the energy side, we see that the operating profit fell 64% in the cathode active material sales volume increase on quarter-on-quarter basis. And this is due to strong sales in the high-nickel products. But because of the inventory valuation losses, operating profit turned to loss in the anode active materials due to sluggish sales of the natural graphite. They've seen the overall decline in the profitability for the Pohang Number four blast furnace because it has been. Because of the changes incurred there, we see that things have been turned to the normalized level.

I think this includes a brief overview of our third quarter earnings. Now we'd like to proceed the Q&A session. Thank you.

We will begin the Q&A session. If you'd like to ask a question, please make sure to press star one on your phone. If you'd like to cancel your question, please press star two. The first question is from Hyundai Motor Securities. Mr. Park. This is Park Hyun-woo. Thank you for this opportunity to ask you a question. I have about three questions. The first is regarding the steel market that is in automobiles and shipbuilding. What kind of price negotiations are ongoing and how is it going? And there have been some announcements regarding EVs and there are mixed signals from POSCO Holdings' perspective. Looking at the stimulus package that's been released in China, how does that relate to our own steel market? How do you view that? The second question is regarding non-essential assets and underperforming businesses.

These are one-time expenditures that are usually consolidated at the end of the year, and I totally understand why you would want to do that. Is this something we should be expecting this year as well? On certain one-time expenditures, will we see all of this being consolidated towards the end of the year? Third is something that was mentioned by the CSO. The fact that POSCO is investing in India, I think that's practical and reasonable. However, I do have some questions. You did mention an integrated mill. Is this blast furnace based or is this based on hydrogen steelmaking? I also have a question about the size. It's probably going to be one blast furnace, but it's probably not going to end. Does it have expandability? The location of Odisha? There's quite a distance between Odisha and Maharashtra.

So if you produce in Odisha and other sheets are produced in PMH, there's quite a distance and transportation that's required. So how will you calibrate what gets produced where? And about 20 years ago, I believe you had contemplated building an integrated mill in Odisha but failed. And I believe there was a lot of opposition from the community and that was part of the reason why you failed. What is different this time? And I believe it was in 2022 with Adani, there was an MOU signed to invest $5 billion into some eco-friendly facility. Now that you have held hands with JSW, what happens with Adani? Has that been cancelled? Or are you doing both in parallel? And if this is an investment into a blast furnace, I believe POSCO has already announced its carbon-neutral strategy.

If it's blast furnace based, then how does this fare into your carbon neutrality roadmap? That's all of my questions, so you asked three key questions. The first is regarding the steel market, and we will have Mr. Hong Yoon-sik from the Head of Marketing Strategy Office, and on the second question, I'd like to ask Mr. Lee Joo-tae, Chief of Corporate Strategy, and on the question regarding the investment in India, we will ask Mr. Chan Song Lee Cheon-seok

But because there were lingering questions about how much impact this was going to have, the prices began to fall again. In shipbuilding and automobile industries. You asked about the impact in those industries. We have half year contracts with the OEMs. And so when we have these half year contracts, of course the third quarter and fourth quarter run on the same prices. But in the beginning of next year, we may see some prices negotiated upward and downward. Currently in shipbuilding, we have not negotiated the full price for the fourth quarter. So that is upcoming and we are trying to up our price with some of the shipbuilding companies, but we are up against some resistance. Since the Chinese stimulus package, what are some projections that we are making? I think that was part of your question.

As mentioned before, since the stimulus package, yes, we did see a huge rebound in prices, and rather than thinking that demand was going to follow suit, we did think that there were the prices had already reflected future stimulus packages. And so at some point the price went above $100 per ton, but I think thereafter the price began to reflect some disappointment, and so it began to fall again. I don't think it's going to fall too low. A lot of the steelmakers in China are already in red ink, and the Chinese government is likely to announce another stimulus package in this, and so we believe it's going to hit another rebound pretty soon. Second question on non-essential assets, that is regarding restructuring, and I think the question was will all of these costs be consolidated in one quarter towards the end of the year?

In the second quarter during our earnings release, we did release about 120 restructuring projects and our plans to restructure these assets or businesses, but now after some time has transpired in the third quarter in particular, the restructuring that was scheduled is on schedule and proceeding as planned, so some of the divestments as well as sales, in some of these cases we can generate a profit. In other cases we may suffer some losses, and that is exactly what happened, but profits outweigh the losses and that's why we turned a general profit in the past when we sold off our nonperforming assets. Yes, we did generate a lot of losses, and so I think a lot of people remember those numbers, and I want to remind you that during this restructuring we are going to suffer some losses.

But according to what we've seen so far and what we plan in the future, there will be more profits than losses. But again there will be some impairments, but I think they will be outweighed by the profits. And so the impact is not going to be hugely negative. I'd like to respond to the third question regarding hydrogen-based steelmaking and blast furnace and which part will be implemented in India. The hydrogen-based steelmaking is not yet commercial. So of course we are going to install blast furnace and a shaft method and this will have to go through discussions with our partner. In the first stage we will do 5 million tons. And what we contemplate at the moment is the first plant site is about 1,600 acres. And so, yes, there is expandability to phase two.

In addition to that site, we could be looking at other sites too, and that is under consideration. The location of Odisha. There's quite a bit of distance between Odisha and PMH. In Odisha, there are many rolling mills from where we get our supplies. So the upstream process, if we place that in Odisha, we will have no shortage of supplies from the local mills, and so keeping our production site here in Odisha, we have plans to go all the way from upstream to downstream. Yes, about 20 years ago, we failed to acquire the land on which we would be able to build the integrated mill. It was not just the acquisition of land, but also mining rights that became the issue at the time, but this time, yes, we are working with a local partner, so they will take care of the mining rights.

The MOU with Adani Group, that MOU was signed at the end of 2022. I think it was in the beginning of 2023 that Adani was languishing in the Hindenburg report, and so we could not carry on that partnership, and that's why JSW and Adani will not go in parallel. In India, carbon net zero goal is by 2070. Ours is by 2050, so in India, we intend to follow local rules. For example, if we invest in a blast furnace, there are many technologies that are under development, such as hydrogen mix technology as well as ccs, and so there are many advanced technologies that are being developed by POSCO Group right now that will all be put to the test and applied there. That's how we will try to get to carbon net zero in India. Thank you. I hope that answered your question.

Operator (participant)

We'll go to the next question. The next question is from iM Securities. Mr. Kim, please ask your question.

Kim Yoon-sang. (senior equity analyst)

Good afternoon, ladies and gentlemen. My name is Kim Yoon-sang. I have three questions, three very short questions. My first question pertains to India. On India, what is demand situation, demand and supply situation? What is POSCO's view? If you look at the demand growth, I think it could be quite positive. But if you look at the supply side, I think there's a rapid increase in the supply as well. So if you look at India, it may not be like quite like the Chinese market. But what about. How do you address the concerns you have the Indian market, given the market and demand situation? Secondly, if you look at the overseas penetration, do you give us good explanations about Indian experience? What about the United States? China was on the south, Southeast Asia. There is a lot of overflow of Chinese products.

Give us an update on what you're doing in this region as well. For the 88 steel plates for the Hyundai and there's been some investigation for the anti-dumping for the low-cost Chinese steel products. What is your position on this Chinese products and how do you intend to respond to that situation? Talk about the demand and supply situation. If you look at this demand, I think it's about 150 million and by 2030 the government intends to make it to 300 million tons or 200 million tons for my forecast depending on where you see. Also, I'd like to say that if you look at the demand itself, if you compare to China and India, I don't think there's a substantive increase. In the India side there's like a 6% or 7% increase every year.

If you look at the past experiences in 2000 or right before 2000, if you look at demand increase in China, there was an increase of 20%-30% every year. So if you look at the situation and of course there could be concerns about the oversupply but even if there is an oversupply situation, partially there could be oversupplied. But POSCO believes that given the portfolio of our products, we focus on the high end products. So I don't think there will be much of a problem there. And for the steel demand, if you look at increase in steel demand you see slight decrease in the Chinese side as well. But in India there's an increase by 10-15 million tonnes every year. And if you look at the demand and supply, I still believe that there is a lot more demand than supply.

The second point about the U.S. and Southeast Asia, the upstream strategy for the United States 2026 or 2027 will be the year that we have been considering the upstream process for the electric furnace. We are continuing to make efforts. That's what I can tell you for now. On the United States side on the third point for the steel plate AD the Southeast Asia for the upstream the AD products PY Vina in Vietnam is going on pretty well and I think we're considering further expansion in the future. For the Indonesia three million tons. We believe that we need to actively consider the expanding in the future Indonesia as well. In Indonesia I don't think we have anything quite concrete right now. We don't have any concrete plan going on for Indonesia right now.

On the third point for the steel plate ADs on how we will respond for that POSCO, Mr. Do Han-ui is going to respond.

Jeong Ki-seop (Chief Strategy Officer)

On steel plate AD filing and what are our responses? I'll give you the answer on that. On steel plates and the anti-dumping filing, there are inquiries that have been sent out by the Korean government to industries that deal in the same products. And so we will be responding to those inquiries. Our deadline is by mid November and I think we may be able to get an extension on that. So we will respond to those inquiries. And of course there's a lot of cheap Chinese products that are flooding our market. Of course, AD filing is a right protected by international law as a means to address unfair trade practices. So key steelmaking economies in an effort to protect their domestic steelmakers often use AD rules as trade remedies.

Recently, Chinese and Japanese hot rolled steel sheets are under investigation and are subject to 80 rulings in the EU, Turkey and Vietnam and Canada, Mexico, Indonesia, Taiwan, Thailand, Australia and UK. AD rulings are being practiced on HR steel sheets. So despite strong protectionist measures undertaken by steel producing economies, the Korean steel industry is exposed, senseless, to imports in an essentially open market devoid of any protectionist mechanism. Unfair trade practices are flooding the domestic market and so POSCO has to take some action as well. Therefore, we intend to strengthen our monitoring activity against steel imports and to address unfair trade practices. We are actively reviewing diverse means of remedy including AD filing.

Operator (participant)

Thank you. Next question please. Next question is from Eugene Securities. Lee Yu-jin, please ask your question.

Jeong Ki-seop (Chief Strategy Officer)

Hello, can you hear me? I would also like to ask about three questions.

Lee Yu-jin (Senior Research Analyst)

First is about the steel market and steel price where recovery is delayed. I feel there are some investments that are being planned but the cost seems a little bit high. What are your plans here? And regarding CapEx for your Indian project, can you make some comparisons? And regarding PMH, I think you are planning about 40 million tons. What is the feedstock that has been secured for this production volume?

Jeong Ki-seop (Chief Strategy Officer)

I'd like your analysis on that. Silicon Solution is my next question. I wonder if you've acquired some good number of clients customers. On the CapEx, we will ask Mr. Kim Seung-jun in charge of finance and IR. On PMH and feedstock, we will ask Mr. Cha Lee Cheon-seok

First on how to secure the funding in India, the investor is POSCO. POSCO is going to make the investment. Our plant capacity is five million tons. It's going to be about KRW 8 billion. But this is a joint investment with a partner, a 50:50 investment. We will be investing maybe about KRW 5 trillion each year. About KRW 4.5 billion EBITDA should be generated and this is going to happen over a period of four to five years. Not happening all in one year. Within that EBITDA I think it's something we can definitely manage and accommodate. In lithium, POSCO Holdings will be making the investment here. This is also not 100% investment from POSCO Holdings. We will have local partners and so there will be some calibration of how much will be expended.

If we look at cash reserves, we have about KRW 4.5 trillion in cash reserves and the convertible bonds that have recently been cashed that generated about KRW 3 trillion as well, so we have sufficient funds. Looking at our financials, this CapEx is not a huge burden. PMH, so full hards and HR products that are supplied to PMH from POSCO, it's about a million tons per year. If we should make this investment, the hot rolled products will not be removed immediately. It will go through a phase reduction, so about one million tons of hot rolled products will over time be removed, and so we will have to find other markets and downstream capacity is something that we would like to acquire additionally, and so that's how we intend to adjust our demand and supply. Let me address silicon solution. Our silicon solution plant will be commissioned next week.

So prior to full capacity production we will have to go through product certification. Of course, through domestic refineries as well as Company P in Japan, Company M in Europe and other companies in the U.S., we are in negotiations with a number of companies. Our certification samples have been submitted to these companies and we have also signed MOUs with a certain part of these clients for a certain volume offtake. And so samples have been submitted and progress is being made so that we will be able to get certified as soon as possible. Next question please.

Operator (participant)

Next question is from DBS. Lee Eun-young, please ask your question.

Lee Eun-young (Senior Equity Research Analyst)

Thank you for this opportunity. I'd like to ask you a question about your investments in India. You said that it's a 50-50% stake investment and if you do a joint venture based on 50-50 equities then this may lead to a number of issues. For example shareholder rights and so there could be a possible conflict in the future. So we have concerns about that as well because this is an Indian venture. So do you have any like a call option, any special provisions to protect their shareholders to have anything reflected in the shareholder structure? And JSW as I understand has sought 110 million ton of the capacity expansion on its own before it entered into a joint venture with the POSCO. So the JSW has its plan for the capacity expansion and with this investment with the POSCO it.

It looks like that it has a strategy to arrive at a high-end product as well. I have concerns that they may abuse you in the future. If you think about the five million tonnes, on what the production process is going to be, how you intend to produce them. You said that nothing concrete has been finalized yet. This five million tonnes, is that be targeting purely the Indian market? Is it your understanding, is my understanding correct that you are just targeting the Indian market with the five million tonnes of products? I also have concerns about carbon neutrality. Basically carbon neutrality is not something to implement just for the POSCO India or POSCO Korea or the United States. It is just going to be all consolidated basis. You have to look at the carbon emission level as a whole.

I think that's what shareholders were looking for. So if you have this 50-50 venture financial outcome is very important about yourself to be thinking about the carbon emissions level. Where would this emissions be calculated? Would it be at the joint venture or at POSCO as a whole? So I'd like to ask you about the questions, ask you to explain that as well. And you're going to begin lithium production and the lithium price has come down quite substantively. And if you think about the cost competitiveness, if you think about what you have in Argentina, you said that your competitiveness is very high. But if you think about the amortization, depletion cost and the production cost, all considered, what would be the BP for POSCO? You're at the initial stages of production, of course you can't reach the break even point.

But let's say the utilization rate rises to 70%-80%, what will be the production cost which we can realize a break-even point. If you think about these brines and also the hard rocks, what will be the cost structure? I'd like to ask you to explain on that as well. When we make it a 50-50% investment, we may, you said that we may enter into some conflicting situations, but we have 50% equity and we have a board that is structured with 50-50% from both sides. I don't think we're going to enter into major conflicting relationship. We are trying to secure the site and come up with. And so it will take some time for us to achieve at a certain level as a call options in the future. We would certainly make compensations for that in the future.

10 million tons I think to try to secure it on their own site is already done. So if you think about the Odisha site, there could be further an expansion made so that by 2028, 2030, so this would be risen to 25 million levels. So what they're trying to negotiate with is part of their 25 million that have in their plan. And the joint venture with POSCO is not an integrated steel mill. They want to come up with a high-end mill. So that is what's been currently being discussed with Indian partner. And India has 150 million tons in size in the market size and the export ratio is 10% relatively very small compared to Indian or the Korean market size.

So this will be purely an Indian market that we are targeting with this joint venture, with the carbon neutrality, I think we need to be very realistic in our approaches. Of course they need to be consolidated, we need to make public disclosures, but we need to be realistic in our approaches. If we make the reduction efforts in India, I think the market would understand that position in looking at the realities of the market situation in India. On the lithium side, Mr. Lee, Mr. Lee, who is responsible for the lithium business, Lee Sang-won is going to respond. Yes, this is Lee Sang-won. On the BP break-even point for the salt lake, frankly, I think lithium producers all over the world are suffering because the price of the lithium is less than $10,000.

So even if they do a salt lake based brine based business, they're not making good profits. We're still at the early stages so I'm not really sure what to say as of now. But compared with our competition competitors, I think the salt lake quality is very high, the lithium content is very high and, and therefore we are not very concerned about that. But we have made quite a lot of investments so there could be quite high amortization cost. But as we entered to full mass production we believe that I don't think there's going to be a significant difference between what we make and what other competitors do. So I think we can make a good profit with this salt lake brine based business.

If you look at the cost difference between the hard rocks and the brines, first as we purchase salt lake, we make a massive investment. For the hard rocks or the Pilbara lithium solutions, we make monthly investments because import from Australia on a monthly basis and therefore there is like raw material cost, feedstock cost. If you think about the process, the processing, I think there's not going to be a great difference. But the difference comes from the feedstock, from the raw materials. And the hard rocks are more costly than the salt lake as of now, compared to the brine. So it's a lot more costly.

Jeong Ki-seop (Chief Strategy Officer)

Do we have any other questions? No one has requested to ask a question yet, so let me speak. I'd like to thank everyone who participated today. The third quarter 2024 earnings release presentation ends now. Thank you very much for your participation.