Executive Summary / Key Takeaways

• POSCO Holdings is strategically transforming into a dual-growth engine powerhouse, leveraging its core steel business while aggressively expanding into future-critical energy materials, particularly lithium and cathode/anode production.
• Despite a challenging 2024 marked by global oversupply in steel and a slowdown in the EV market, the company demonstrated a Q1 2025 rebound in operating profit across all segments, signaling a potential stabilization from prior lows.
• Significant strategic alliances with Hyundai Motor Group (HYMLY) in the US and JSW Group in India underscore a proactive response to global trade regionalization and a commitment to securing upstream capabilities and future mobility material supply chains.
• Technological differentiation, notably the HyREX hydrogen-based steelmaking initiative and advanced lithium processing, forms a critical competitive moat, aiming for decarbonized production and enhanced cost-competitiveness in key growth areas.
• Ongoing asset restructuring is generating substantial cash, targeting KRW2.6 trillion by 2026, which is being strategically redeployed into core growth investments and shareholder returns, underpinning a cautious but optimistic outlook for improved profitability from late 2026.

Forging a Resilient Future: POSCO's Strategic Evolution in a Shifting Global Landscape

POSCO Holdings Inc. ($PKX), established in 1968 as an integrated steel producer, stands at a pivotal juncture, strategically evolving its core business while aggressively expanding into the future-critical energy materials sector. The company's foundational strength in steel, exemplified by its early establishment of POSCO Maharashtra (PMH) in India in 2009—which by 2023 commanded a joint number one market position in automotive coated steel with a 28% share—has provided a robust platform for its current diversification. This historical trajectory, focusing on high-value products and market penetration in growth economies, directly informs its present strategy to build a dual-growth engine.

The broader industry landscape is characterized by significant shifts. A global tariff war has intensified economic uncertainty, while the EV market slowdown has impacted critical metals prices. Steel markets are increasingly regionalizing, driven by geopolitical risks and protectionist trade tendencies. However, opportunities abound, particularly in India, which is experiencing rapid steel demand growth with per capita consumption at only 40% of the global average, bolstered by strong government policies. China's decarbonization strategy, aiming for a 53 million-ton CO2 reduction by 2026 (equivalent to approximately 10 million tons of crude steel), also signals a potential rebalancing of global steel supply.

In this dynamic environment, POSCO Holdings maintains a prominent position, often recognized as a leading Asian steel producer. Its diversified business segments, encompassing steel, construction, and trading, offer a broader market positioning and enhanced resilience compared to more concentrated competitors like ArcelorMittal (MT). While ArcelorMittal benefits from immense global scale and supply chain integration, POSCO's integrated operations across steel and construction allow it to offer bundled solutions for infrastructure projects, a unique value proposition. Against Nucor Corporation (NUE), primarily a North American player focused on electric arc furnace technology and recycling, POSCO's global footprint and advanced steel types for high-value applications, such as electrical steel, provide a competitive edge in international markets and alignment with sophisticated infrastructure demands. Similarly, when compared to Nippon Steel Corporation (NPSCY), another Asian giant focused on high-quality automotive steel, POSCO's broader geographic reach and end-to-end service capabilities through its subsidiaries offer a more holistic competitive advantage, though Nippon Steel may lead in innovation speed for highly specialized steel technologies. Financially, POSCO's multi-segment structure supports stable cash flow generation, as evidenced by its TTM Gross Profit Margin of 7.41% and EBITDA Margin of 8.84%, though it may face challenges in achieving the lean operational efficiency seen in some pure-play steelmakers.

Technological Edge: Forging a Sustainable Future

At the heart of POSCO's long-term strategy is its commitment to technological differentiation and innovation, particularly in low-carbon steelmaking and advanced battery materials. The company's HyREX technology, designated a national strategic technology in January 2024, represents a significant leap towards hydrogen-based steelmaking. The successful production of the first batch of molten iron from its electric smelting furnace (ESF) in April 2024 marked the official commencement of demo preparation for future low-carbon steel. This initiative is critical for POSCO to meet its carbon neutrality goal by 2050, aligning with global decarbonization mandates and positioning it as a leader in green steel production. The tangible benefit of HyREX is its potential to drastically reduce carbon emissions compared to traditional blast furnaces, offering a pathway to meet the growing demand for decarbonized steel from major customers like automotive OEMs and energy companies by 2030. This technological advantage is expected to command a "green premium" pricing, directly contributing to higher average selling prices (ASPs) and improved margins, thereby strengthening POSCO's competitive moat.

Beyond steel, POSCO is actively engaged in R&D for next-generation battery materials. The company is developing low-priced lithium sulfate and solid precursors, with promising results already achieved in producing solid precursors. These initiatives aim to enhance cost competitiveness and secure future supply chains. Tests are currently underway with original equipment manufacturers (OEMs) and battery companies for these new materials, with stated goals to advance Korea's next-generation battery development. This focus on advanced materials is crucial for POSCO Future M's long-term profitability and market positioning in the evolving EV battery landscape.

Operational Momentum and Strategic Expansion

POSCO's operational performance in Q1 2025 demonstrated a notable rebound, with consolidated revenue reaching KRW17.4 trillion and operating profit hitting KRW570 billion, an improvement from the previous quarter's low of KRW95 billion. This recovery was broad-based, with all business segments contributing.

Steel Segment

The core Steel segment saw its operating profit margin recover to 3.9% in Q1 2025, driven by slightly increased selling prices, stable raw material costs, and enterprise-wide cost-saving efforts. This occurred despite a 5.5% quarter-on-quarter decline in crude steel output due to maintenance works. Management anticipates a recovery in Q2 2025 sales volumes, as the Q1 reduction was operational rather than demand-driven.

Strategically, POSCO is aggressively expanding its global footprint. A critical alliance was forged with Hyundai Motor Group in Q1 2025 to jointly invest in a US steelmaking plant and develop next-generation battery materials. This partnership is a direct response to the USMCA "melted and poured" origin rule, which by July 2027 will require steel for tariff-free automobiles to be produced within North America. This initiative will ensure a reliable supply of US-melted and poured steel products to POSCO Mexico's auto panel manufacturing plant and expand volume to US OEMs. Furthermore, in October 2024, POSCO signed a comprehensive MOU with JSW Group in India to collaborate on steel, energy materials, and renewable energy. This includes plans for a 5 million-ton capacity integrated steel mill in India, a 50-50 joint investment focusing on premium automotive steel products. The Indian plant is projected for completion by 2031. These strategic moves address the regionalization of global steel markets and secure upstream capabilities in high-growth regions.

Energy Materials Segment

The Energy Materials segment, positioned as POSCO's second growth engine, showed signs of recovery in Q1 2025, with overall operating losses reduced by half quarter-on-quarter. POSCO Future M achieved a turnaround to profit, propelled by a 64% quarter-on-quarter increase in high-nickel cathode materials sales volume and a 33% quarter-on-quarter rise in natural graphite-based anode materials, driven by demand for non-China origin materials.

Significant progress has been made in lithium production. POSCO Argentina Brine Lithium Phase 1 plant, with a 25,000-ton lithium hydroxide capacity, completed construction in July 2024, successfully producing its initial 200 tons. Phase 2, also with 25,000 tons capacity, is set for completion in Q3 2025. POSCO Pilbara Lithium Solution (PPLS) Plant 1, which produces lithium hydroxide from ore, achieved a daily plant operation rate of up to 76% in June 2024 and is targeting full operation by February 2026. PPLS Plant 2, completed by the end of 2024, aims for client certification in Q3 2025. By the end of 2026, the company expects to have a production base of 68,000 tons. The Indonesia nickel project reached 69% construction progress by Q2 2025 and is on track for completion by Q2 2026. POSCO HY Clean Metal, the recycling subsidiary, achieved a 92% plant operation rate by June 2024, with quality certification underway.

Infrastructure Segment

The Infrastructure segment maintained solid performance in Q1 2025. POSCO International's energy business saw increased operating profit due to higher electricity sales and robust domestic sales from Myanmar gas fields. POSCO E&C's operating profit in its plant and infrastructure segments also increased slightly, despite a decrease in Q1 revenue due to the completion of major projects. Key developments include the Myanmar offshore gas field Stage 3 commencing commercial production in April 2024. Stage 4 expansion is underway, with full-scale gas production anticipated by July 2027. In Australia, Senex obtained final approval in June 2024 to triple its gas production capacity, aiming for an annual production of 1 million tons by 2026.

A new subsidiary, POSCO SAFETY SOLUTION, was established on September 17, 2025, as a wholly-owned entity providing Occupational Safety and Health Advisory Services for Business Sites. This adds to the group's diversified service offerings.

Financial Resilience and Capital Allocation

POSCO Holdings' financial performance in 2024 reflected significant headwinds, with consolidated revenue declining to KRW72.7 trillion and operating profit to KRW2.2 trillion. The fourth quarter of 2024 was particularly weak, with operating profit at KRW95 billion, impacted by market downturns, high initial operating costs for new battery plants, and one-off steel business expenses. Asset impairment losses totaled KRW1 trillion in Q4 2024, contributing to KRW1.2 trillion for the full year, stemming from the suspension of outdated steel assets and proactive recognition of losses on assets marked for sale.

However, Q1 2025 marked a turning point, with consolidated operating profit rebounding to KRW570 billion, reaching levels similar to the previous year. The company's TTM Gross Profit Margin stands at 7.41%, Operating Profit Margin at 2.78%, and EBITDA Margin at 8.84%. While these margins reflect the challenging market, POSCO's diversified revenue streams provide a degree of stability compared to more specialized competitors.

Liquidity and capital allocation are central to POSCO's strategy. The company generated KRW662.5 billion in cash in 2024 through restructuring low-performing businesses and non-essential assets, with KRW100 billion allocated to treasury share buyback and retirement. This restructuring continued into Q1 2025, divesting six assets and generating KRW286.6 billion. The ambitious restructuring program targets generating KRW2.6 trillion in cash by the end of 2026, which will be strategically deployed into future growth investments and shareholder returns.

The CapEx plan for 2025 is set at KRW8.8 trillion, a slight reduction from KRW9 trillion in 2024, reflecting a disciplined approach to investment pace amidst market volatility. This capital is strategically allocated: 43% to steel, 34% to energy materials, and 17% to infrastructure, underscoring the commitment to both core and growth segments. The integrated mill investment in India, projected at $8 billion (KRW11 trillion), will see POSCO contribute approximately one-fourth (KRW2.5 trillion) over five years, an annual investment of KRW0.5 trillion, which is deemed manageable given POSCO's annual EBITDA of at least KRW4 trillion.

Outlook and Strategic Vision

Management expresses cautious optimism for the remainder of 2025, anticipating overall operating profit to be "slightly better than 2024," even without factoring in significant lithium or steel price increases or anti-dumping resolutions. This outlook is predicated on the stabilization of domestic steel markets, continued cost-saving efforts, and the incremental ramp-up of new energy materials plants.

For the Energy Materials segment, while 2025 is expected to remain challenging due to ongoing ramp-up costs and product certification processes, management projects profitability to emerge in the latter part of 2026, with stable operations across most plants by 2027. This timeline is critical, as lithium prices, which fell below $10,000 per ton in Q3 2024, are projected by six agencies to gradually increase after 2025, reaching an average of $20,000 by 2028. This long-term price recovery, coupled with increased production from new facilities, is fundamental to the segment's profitability. POSCO Future M's cathode material sales are expected to grow by more than 30% in 2025, driven by new high-nickel clients and full-scale mass production.

The company's strategic vision is clear: to adapt to changing global trade environments, enhance competitiveness in future mobility materials, and strengthen its energy business foundation. This involves adjusting investment speed in EV materials in response to market volatility, while proactively acquiring quality lithium assets in South America and Australia during current low market conditions. Recent strategic moves, such as the MOU with ReElement Technologies (REEM) for a rare earth supply chain in the US, the Alaska LNG partnership with Glenfarne, and the exploration of uranium enrichment investment with Centrus (LEU) and KHNP, further diversify its resource and energy portfolio, reinforcing its long-term growth trajectory.

Risks and Headwinds

Despite the strategic initiatives, POSCO Holdings faces several pertinent risks. The global tariff war and China's oversupply continue to suppress steel prices and limit mill margins, intensifying trade protectionism worldwide. The slowdown in the EV market and tumbling essential mineral prices have led to inventory value impairment and prolonged profitability challenges for new energy materials plants, with significant fixed costs incurred during ramp-up stages. The USMCA "melted and poured" origin rule presents a compliance challenge for its Mexican operations from July 2027, necessitating strategic investments in the US.

Lithium price volatility, exacerbated by US tariff policies, adds uncertainty to the profitability timeline for energy materials. Furthermore, the 50-50 equity joint venture structure for the integrated mill in India, while mitigating local risks, could present potential for future conflicts regarding shareholding rights or strategic direction, as seen in past failed attempts to establish a mill in Odisha. The company's carbon neutrality goals, while ambitious, face the practical challenge of implementing decarbonization technologies in new blast furnace investments in markets like India, where local regulations (carbon net zero by 2070) differ from POSCO's own 2050 target. Asset valuation losses, particularly in the secondary battery materials sector due to falling metal prices like nickel, remain an inherent risk during market downturns.

Conclusion

POSCO Holdings is executing a bold and multifaceted strategy to transform its business model, moving beyond its traditional steelmaking roots to embrace a future powered by green materials and advanced energy solutions. The core investment thesis hinges on its ability to successfully leverage its technological leadership in low-carbon steel, particularly with the HyREX initiative, and to scale its energy materials business into a profitable second growth engine. Strategic alliances in key global markets, coupled with a rigorous asset restructuring program, are designed to enhance resilience, secure critical supply chains, and optimize capital allocation.

While the immediate future presents headwinds from global trade tensions, EV market deceleration, and the inherent costs of ramping up new facilities, POSCO's management maintains a clear vision for long-term value creation. The anticipated return to profitability for its energy materials segment by late 2026, supported by projected lithium price recovery and robust growth in cathode material sales, serves as a critical forward-looking indicator. Investors should closely monitor the execution of its global expansion projects, the progress of its decarbonization technologies, and its ability to manage competitive pressures and commodity price volatility. POSCO's commitment to innovation and strategic adaptation positions it to emerge stronger from the current market chasm, solidifying its role as a key player in the evolving global industrial landscape.