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DATE

Thursday, July 30, 2026 at 2:00 a.m. ET

CALL PARTICIPANTS

  • Head of Finance and IR Division - Kim Seung-Jun
  • IR Office Head - Young-Ah Han
  • Marketing Office Chief - Nho Song Mae
  • International Trade Affairs Office - [Unnamed]
  • Energy Materials Business Management Office - Il Tae Yoon
  • Infrastructure Business Management Office - Kim Min-su
  • Energy Materials Business Development Office - Mi Seung-won
  • Marketing Strategy Office - [Unnamed]

TAKEAWAYS

  • Consolidated Revenue -- KRW 19.3 trillion, representing a KRW 1.4 trillion increase from the previous quarter.
  • Consolidated Operating Profit -- KRW 819 billion, a 16% increase compared to the previous quarter.
  • Rechargeable Battery Materials Operating Profit -- KRW 41 billion, transitioning to a surplus for the first time in nine quarters due to profit at the Argentina lithium subsidiary.
  • POSCO Steel Operating Profit -- KRW 274 billion, a KRW 61 billion gain reflecting increased production and sales volumes that offset rising logistics and energy costs.
  • Carbon Steel Average Selling Price -- KRW 962,000 per tonne, up from KRW 920,000 in the first quarter.
  • Steel Production Target -- 9 million tonnes for the third quarter, which management stated represents maximum production levels following the completion of major mill overhauls.
  • Domestic Steel Sales Mix -- 55.5%, up from 51% in previous years as the company stabilized its position in the South Korean market.
  • POSCO Future M Operating Margin -- 3.9%, a 1.6 percentage point improvement quarter over quarter driven by higher oil-linked chemical product prices.
  • Argentina Lithium Performance -- Revenue grew 290% quarter over quarter, resulting in a first-ever quarterly operating profit of KRW 11 billion.
  • POSCO Pilbara Revenue -- KRW 102 billion, though the unit remains at a KRW 1 billion operating loss due to unfavorable price spreads between spodumene and lithium hydroxide.
  • Restructuring Cash Generation -- KRW 475.4 billion in the first half of 2026, generated from 12 projects including the divestment of steel operations in China.
  • Long-Term Restructuring Target -- KRW 3.5 trillion in cash by 2028, achieved through the sale of underperforming and noncore assets.
  • CapEx -- KRW 2 trillion for the quarter and KRW 3.7 trillion for the first half of 2026, focused on future growth pillars.
  • Rare Earth Project -- $200 million estimated cost for a project with ReElement Technologies targeting commercial production by 2028.
  • Electric Arc Furnace Capacity -- 2.5 million tonnes completed in June at the Gwangyang facility to produce carbon-reduced steel products.
  • Rare Gas Production -- High-purity rare gas plant completion in June to supply the semiconductor industry using materials from steelworks oxygen plants.
  • European Market Exposure -- 10% to 15% of total exports, with management planning to focus on high-margin products to mitigate EU quota reductions.
  • PTKP Expansion -- 90% of total Phase 1 CapEx has been recovered through EBITDA margin, with Phase 2 expansion targeting the Southeast Asian automotive steel market.

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RISKS

  • Han stated, "The company takes this very seriously," regarding a recent fatality at the POSCO E&C construction affiliate and the subsequent inspection of safety management systems.
  • Han noted that for POSCO Pilbara, "Currently the price spread is not in our favor, so we face profit pressures in the second half" regarding the relationship between raw material costs and lithium hydroxide prices.
  • Kim stated that in Argentina, "a temporary drop in production volume seems inevitable" in the third quarter due to seasonal winter factors and planned equipment replacement.
  • Nho noted that in the home electronics sector, "prices remain very conservative" as production bases transition to Southeast Asia, challenging the transfer of costs to final prices.

SUMMARY

Management reported that **POSCO Holdings Inc.** (PKX +3.01%) achieved consolidated revenue of KRW 19.3 trillion and an operating profit of KRW 819 billion for the second quarter. The rechargeable battery materials sector reached its first surplus in nine quarters, primarily driven by the initial profitability of lithium operations in Argentina. The steel division improved its operating profit to KRW 274 billion despite a 6% increase in raw material costs, utilizing price hikes and higher domestic sales volumes to bolster margins. The company is currently executing a restructuring plan aimed at divesting loss-making Chinese subsidiaries and noncore assets to improve capital efficiency. Strategic investments are proceeding in electric arc furnace technology and lithium hydroxide production to address evolving environmental regulations and battery material demand.

  • Management plans to replace the LP dryer equipment at the Argentina lithium facility during the third quarter off-season to prepare for full operation in the fourth quarter.
  • The company is transitioning its LFP cathode active material lines in Pohang to be commercially ready by January 2027.
  • CEO Kim stated that the company will allocate 10% of cash generated from equity divestments at affiliates toward shareholder returns, estimated at approximately KRW 350 billion.
  • The new 2.5 million tonne electric arc furnace will initially mix molten iron from blast furnaces to develop high-grade automotive and electrical steel for the European market.
  • Management confirmed the divestment of Chinese subsidiaries PZSS and QPSS was completed this quarter, resulting in a one-off divestment profit.
  • Marketing Office Chief Nho stated that the company is "negotiating based on Formula 1" for automotive steel prices to gradually phase in fuel and raw material cost increases.
  • The company is internalizing rare earth separation and refining technology through R&D at the POSCO N.EX.T hub and partnerships in the U.S. and Southeast Asia.

INDUSTRY GLOSSARY

  • CBAM: Carbon Border Adjustment Mechanism, a European Union tool that puts a fair price on the carbon emitted during the production of carbon intensive goods entering the EU.
  • EAF: Electric Arc Furnace, a steelmaking furnace that uses electricity to melt scrap steel or direct reduced iron.
  • HyREX: POSCO's proprietary hydrogen-based steelmaking technology.
  • LFP CAM: Lithium Iron Phosphate Cathode Active Material, a type of battery component known for safety and long cycle life.
  • PZSS/QPSS: POSCO's stainless steel production subsidiaries located in China.
  • PTKP: PT Krakatau POSCO, an integrated steel mill joint venture in Indonesia.
  • Spodumene: A lithium-bearing mineral that is a primary source of lithium for battery production.
  • TGLC/PGLC: Technical Grade Lithium Carbonate and Premium Grade Lithium Carbonate.

Full Conference Call Transcript

Operator: Greetings, everyone. Thank you for coming to attend the conference call for POSCO Holdings earnings release. Today, we will have a presentation from POSCO Holdings first, and then we will have a Q&A with all of you. [Operator Instructions] So now I'd like to begin the POSCO Holdings 2026 Second Quarter Earnings Release.

Seung-Jun Kim: Greetings, everyone. I'm Head of Finance and IR Division at POSCO Holdings. My name is Kim Seung-Jun. Despite the harsh heat, thank you for attending the second quarter earnings for POSCO Holdings. My sincere thanks go to the investors and the analysts. In the second quarter, the Middle East conflict triggered energy supply risk intensified, while the Korean won continued to lose value, business faced headwinds. Nevertheless, POSCO Holdings recorded consolidated revenue of KRW 19.3 trillion and KRW 820 billion in OP, keeping the rising profit curve. Gains were recorded against previous quarter in all key sectors of steel, rechargeable battery materials and energy. Most notable is our Argentina lithium business that turned a first-ever quarterly profit.

So the general RBM sector transitioned to a surplus for the first time in 9 quarters. Our steelmaking affiliate, POSCO registered its separate OP of KRW 270 billion, a KRW 60 billion gain over the previous quarter. On third quarter outlook, what is most notable is that POSCO will make more visible performance gains. While some raw material costs will climb, increased production will offset fixed costs. Through effort made to increase sales and sales price, we expect the rise to continue. In the rechargeable battery materials sector, following its first ever quarterly surplus in the second quarter, a temporary slowdown may be observed in the third quarter. Located in the Southern Hemisphere, it is winter in Argentina.

This seasonal factor causes pond evaporation to dwindle. By leveraging this off-season, we plan to replace the LP dryer equipment. Hence, a temporary drop in production volume seems inevitable. Starting in the fourth quarter, however, the plant will run at full operation. Additionally, in Q4, long-term supply agreement will kick in, allowing us to deliver certified products. Therefore, we anticipate a more meaningful level up in Q4. Besides the performance gains, the first half of this year demonstrated marked progress in building for future growth. One is Gwangyang's first EAF operation and the other the HyREX demo plant construction start.

POSCO Holdings is committed to upholding the 2 pillars of growth, which are profit enhancement by sector and strategic investment for future growth. We'll do our best to continue to grow our corporate value. Now I will give the floor to our IR Office Head to offer more second quarter details.

Young-Ah Han: Next, we will move on to Page 3 of the materials, and I will brief you on the business performance of the second quarter 2026. The consolidated revenue of the second quarter was KRW 19.3 trillion, which is a KRW 1.4 trillion increase on quarter. The operating profit stood at KRW 819 billion, a 16% increase on quarter. The quarterly EBITDA stood at KRW 1.9 trillion and CapEx of KRW 2 trillion was administered this quarter, totaling KRW 3.7 trillion of CapEx for the first half. Now let me elaborate by business. First, Steel business profits improved on quarter by KRW 58 billion.

The Middle East conflict impacted logistics and energy costs and foreign exchange rate driving up short-term cost volatility. However, production and sales volume growth and partial price increase offset the headwinds that lowered profits at the end of last year to drive recovery. The RBM business had for the past 8 consecutive quarters operated in the red. However, this quarter, we recorded operating profit of KRW 41 billion swinging to an operating surplus. Until last year, there was a quarterly deficit of around KRW 50 billion at POSCO Argentina. But this quarter, the subsidiary swung to an operating profit. In infrastructure, highest recording quarterly profit was recorded by POSCO International, driving a profit growth of 22% on quarter.

The divestment of PZSS and Chinese subsidiaries are now complete, registering one-off divestment profit for this quarter's net profit. Next, I'd like to report on our safety index. Every year and every half year, POSCO Holdings transparently releases updates on our safety metrics and progress made on our policies. In June, we suffered another fatality at POSCO E&C, our construction affiliate. The company takes this very seriously. They are putting all efforts into inspecting and strengthening their safety management system. POSCO Safety Solution in collaboration with dss+, a global safety solution provider, we are assessing the safety of 33 group affiliates across 4 key areas. By October, we plan to sort safety risks and identify corrective action plans.

You can find more detail on our safety initiatives on Page 4. Now Page 5, the key business activities in the second quarter. With Australia-based Mineral Resources, we signed the investment agreement on April 30. The JV is planned to be established by October. For Lithium DLE demonstration, we are working with Anson Resources. The demo plant cooperation contract was signed in June, and the plant is scheduled to come online in 2027. POSCO Future M's LFP CAM business is in motion. First, we have Future M's Pohang NCM CAM lines that are being recalibrated for LFP production with plans to be commercially ready by next January.

Future M, Fino and CNGR's JV, CNP New Materials began construction of a new LFP plant to begin commercial production by the end of 2027. Next, Page 6. POSCO Holdings has 100% share of POSCO Air Solutions, whose high-purity rare gas plant was completed in June -- on June 17 in Gwangyang. To generate profit, it requires certification processes, which will take time. But by using materials from the steelworks oxygen plant, it can meet some of the rare gas demand for the chip industry with good prospects for profit. At POSCO International, rare earth agreement business partnership was signed with the U.S.-based ReElement Technologies last May. Total project cost is estimated at $200 million for commercial production by 2028.

POSCO's 2.5 million tonne EAF was completed by June. In its early operation stage, we plan to mix molten iron from the blast furnace and EAF to produce general purpose steel. At the same time, we will continue testing and development to produce high-grade steel. We aim to boost quality to the level of blast furnace-based products, developing refining and rolling technologies to ultimately produce automotive and electrical steel, which will help us -- this will help us respond to CBAM and other environmental regulations. Next page is on updates about our restructuring projects. In the first half of this year, there were 12 restructuring projects that generated KRW 475.4 billion in additional cash.

The largest impact was from divesting steel operations in China that made the bulk of our losses. They include PZSS, QPSS and STS processing center. Our restructuring effort targets underperforming businesses and noncore projects. By selling these assets, we seek to improve long-term performance and enhance our capital efficiency. By '28, we expect to generate KRW 3.5 trillion of STS resulting from these projects. Next, let's discuss earnings by each division. POSCO recorded operating profit of KRW 274 billion in the second quarter, representing an increase of KRW 61 billion compared with the previous quarter. While profitability improved quarter-over-quarter, the operating margin remained at 2.9%, which is still below our historical average.

Both crude steel production and product sales increased from the previous quarter, demonstrating a relatively stable operating performance. However, profitability was affected by higher costs. Key raw material costs rose by approximately 6% quarter-over-quarter, while increases in oil prices, foreign exchange rates, logistics expenses and maintenance costs also placed additional pressure on earnings. Nevertheless, the average selling price of carbon steel products increased from KRW 920,000 per tonne in the first quarter to KRW 962,000 per tonne in the second quarter. This price improvement helped partially offset the increase in raw material costs. Looking ahead to the third quarter, operations have stabilized following the completion of the major hot rolling mill overhaul and no significant maintenance shutdowns are currently scheduled.

Accordingly, we are targeting crude steel production of approximately 9 million tonnes, which would represent our maximum production level. The domestic steel market, which had experienced deteriorating profitability since 2024, is also showing initial signs of stabilization. As a result, the proportion of domestic sales, which had declined to approximately 51% over the past several years, increased to 55.5% this quarter. Although cost pressures remain elevated, we will continue to mitigate their impact through enhanced production efficiency, ongoing cost reduction initiatives and price negotiations with customers. Taking these factors into consideration, despite the continued uncertainty in the business environment, we expect POSCO's profitability to maintain its quarter-over-quarter improvement in the third quarter. Turning to Page 9.

I will now discuss the performance of our overseas steel operations. Overall, the performance of our major overseas subsidiaries remained broadly stable. Although currency depreciation in several markets and weaker export conditions created challenges, we were able to partially offset these pressures through selling price increases and cost reduction measures. Lastly, please note that our Zhangjiagang operation in China was excluded from the consolidated financial statements beginning this quarter following the completion of its divestment. Page 10, POSCO Future M. Second quarter POSCO Future M OP margin rate was 3.9%, a 1.6 percentage point quarterly improvement. Owing to the rise in oil price-linked chemical product sale prices, the impact served as a tailwind for base materials profits.

Energy Materials also registered a small profit. Next is Page 11 on our lithium affiliates. At POSCO Argentina, sales volume rose 160% against the previous quarter and revenue by 290%. By registering quarterly OP of KRW 11 billion, this quarter became the first ever since the company was incorporated to achieve operating surplus. Multiple clients have signed supply agreements with us, and we are seeking certification procedures and new clients as well. While this upward trend is projected to continue in the second half, as the CFO already mentioned, on a quarterly basis, we may see some shifts. POSCO Argentina in July is undergoing some interim repairs such as the replacement of the LP dryer.

Once completed, we'll bring it back up to full operation in Q4. From Q4 also, the sale of certified products will phase in. Based on market circumstances, uncertified products can be sold at approximately 10% discounted prices. Therefore, once the certified products sales kick in, profits are likely to make additional gains. In the meantime, Plant 2 is an initial operating stage bracing for its full commissioning scheduled in October. In summary, the third quarter may appear to be a slight slowdown. However, in the fourth quarter, Plant 1 will be able to not only offset Plant 2 initial ramp-up costs, it is also expected to outdo its second quarter performance by another notch.

POSCO Pilbara Lithium Solutions improved its margins owing to higher price and expanded sale of certified products. Second quarter revenue hit KRW 102 billion, an increase over the previous quarter. Operating losses were also reduced to around KRW 1 billion. As mentioned in the previous quarter, P-PLS margins are highly impacted by the price spread of spodumene and lithium hydroxide. Currently, the price spread is not in our favor, so we face profit pressures in the second half. We will continue to monitor the market and take measures as necessary. POSCO HY Clean Metal maintains plant operations close to 100% despite challenges in acquiring feedstock since December 2025, that has kept up steady monthly profit gains.

Again, this is owing to an operational rate of almost 100%. And so it is able to keep up speed even with some headwinds. Page 12, POSCO International. For POSCO International, energy and materials segments both grew, recording the highest quarterly and half year operating profit. In energy, Myanmar gas field saw selling price rise along with higher FX. And the Senex gas field was expanded. And in materials, Indonesian pond production was newly acquired, and this helped improve performance. Page 13, POSCO E&C. POSCO E&C recorded a surplus of KRW 44 billion this quarter. So it wrapped up the first half with operating profit of KRW 97 billion.

And once again, this shows recovery from the KRW 452 billion temporary deficit it suffered last year. And this concludes the 2026 second quarter earnings briefing. We will now move on to the Q&A.

Operator: [Operator Instructions] The first question comes from Hyundai Motor Insurance.

Hyun-wook Park: My name is Park Hyun-Wook. I have 3 questions. The first is regarding second half steel market outlook as well as the direction POSCO will be taking, especially in automotive shipbuilding and home electronics. And how will you negotiate price in the second half of this year? Second question is starting in July, Europe will begin its quota system. So what will be the proportion of sales made to Europe against these trends? And of course, there are some temporary tariffs that are being imposed although temporary, this is something that will apply to hot-rolled products as well. So I wonder what your countermeasures are against these tariffs.

And third question is, this was also discussed in the Investor Day conference. For overseas investments as well as repairs that are going on in the steelworks, I think all of these are going to be happening in parallel. But PTKP 1 is not in a good situation. And of course, there are different stories being told about the automotive industry. But looking at the profits, how do you intend to generate profit?

Unknown Executive: My name is [ Nho Song Mae ], Marketing Office Chief. So you asked for market outlook for the second half of this year. Due to fuel costs and raw materials costs that went up in the first half, of course, this impacted our prices, but this did also impact our own price. And so we will consider market situations and make sure to apply what needs to be applied to our price. But because of the Iran conflict, there are volatilities in the raw materials costs as well as external variables due to AD. So we will have to continue to closely monitor the client situation as well as the markets and our adjacent markets as well.

Rather than take a rapid rise in price, I think we will be more gradual in our measures. Looking at the automotive industry, we are negotiating based on Formula 1. Despite these oil price hikes and other volatilities, a lot of these did not actually -- were not applied to our price. So in the second half, we will gradually phase these variables into the price. And in shipbuilding, this is not based on formula index, but because we have a strong demand, we will continue to adjust and reflect these variables to our final price.

In home electronics, we continue to transfer our production base to Southeast or we -- the world continues to transition its production base to Southeast Asia. And so the prices remain very conservative. But there are costs that need to be applied to our final price.

Unknown Executive: [indiscernible] ITO, I will answer the second question on EU quota reductions. By bracing against these measures, there are some safeguards that were put in place. And of course, we cannot avoid all impact, but through government negotiations, we are trying to minimize the quota reduction for Korea. And so compared to our competition, we believe we have a much more favorable position. With quota reduced, we will be entering that market with more high-margin products. And through World Steel Association as well as fair trade agreement clauses, we want to be able to keep the European market favorable to us.

If there is a reduction or a cut in our sales volume, we will make some transitions to be able to make up for these losses. EU proportion for POSCO will vary by each year, but it's about 10% to 15% of our total exports. Japan, Southeast Asia and Europe make up our key exporting markets. In regards to Japan and the tariffs, as you mentioned, in August last year, we began an investigation and the investigation is still ongoing. So in June of this year, for Korean and Taiwan cold-rolled products, they made parallel -- launched parallel investigation on all products. So these are things that are still ongoing.

On coated products AD that was announced on July 24, because there was excessive intervention on the part of the investigating authority, we believe that the AD determined as a result of that assessment is what we are seeing today. So we will be very clearly looking into all of the unfair and irrational reasons for -- apply to these decisions, and we will make sure to make adjustments necessary for our operations.

Unknown Executive: POSCO Holdings CEO Management Office, I would like to respond to your question about PTKP in Indonesia. So PTKP Phase 1 is not profitable or the profits are very small. When it initially went into operation, most of the products were plates and semi-finished products, and we were devoid of customers when we began. So in the initial stage, yes, our profits were very slim. But let's look at it in 5-year interim stage intervals. We are currently profitable, and we are able to generate cash flow. That is where we are now. About 90% of total invested CapEx has been recovered through EBITDA margin.

And the reason we want to invest in Phase 2 is because this isn't something that came out of the blue. We've had an expansion plan from the very beginning, but we waited until situation would be more favorable because we have improved conditions now, we've been able to add more detail to our expansion plan. Exactly when we will begin to build or construct that has not been determined yet. And Phase 2 is different from Phase 1 because we are targeting the automotive steel sheet market in Southeast Asia. In each Southeast Asian economy, I'm sure they have their own plans to supply their own automotive steel sheets.

The hot-rolled products from PTKP is what differs because most of the Southeast Asian nations are producing cold-rolled products. So compared to the competition, ours will be much more profitable.

Operator: We will move on to the next question. The next question is from iM Securities, Mr. Kim Yoon Sang.

Yoon-sang Kim: I am Kim Yoon Sang from iM Securities. I have 3 questions for you. First is related to lithium. You demonstrated good performance this quarter. And recently, at the Investor Day, you mentioned you gave us guidance for the expected profit for lithium in the next few years. And I would like to ask what is the profitability for brine and hard rock lithium. And if there are any plans to improve profitability, I'd like to hear about them. And the last question related to lithium is the price outlook. Recently, there are about mines and all these various mines -- news of various mines coming from Australia, which have affected the prices.

But with the reutilization of these mines, do you expect the price to fall? Or do you not expect it to impact the prices as much? For the second question is related to the rare earth. Also at the Investor Day, you provided some guidance, but what is your plan regarding rare earths? And there, you will need technology and the raw materials to dive into this business. And I would like to ask what is going on with the preparation. The third part is related to steel. And recently, the long products demand has been on the news quite often. It's not one of POSCO's major key products, but I would like to ask your plans regarding this.

Yoon Tae-il: I am Il Tae Yoon from Energy Materials Business Management Office. At the Investor Day, we provided long-term outlook, long-term vision. When we provide these visions -- announced these visions, we -- many organizations predict the price to be over $30 (sic) [ $30,000 ]. So for brine lithium we think we can achieve about 80% operating profit. And the second is plans for expansion for Phase 3 and Phase 4, and we have a performance projection for 2035. P-PLS and Argentina Plant 1 will have depreciated by then. And so that's been applied there. And for hard rock lithium, we made an investment in mineral resources. And so that CapEx is applied here.

And because some of the mines are coming back into operation, how will that impact our prices? I think that's already been worked into this plan. Of course, you've seen these lithium prices fluctuate wildly in the past. And so those prices and those impacts have been worked into this formula. And this is based on LC. And based on our estimation, this estimates 100,000 tonnes per year production. And this is a large volume equivalent to about 5% of total demand. And because there's a lot of development going on in Australia, looking into the future, lithium price falls have already been worked into our plan.

The only thing that we think could change is the price of spodumene, which could drop quite a bit. In Argentina, that is not positive for Argentina. But for the hard rock lithium business, this could be favorable.

Unknown Executive: I am [ Kim Min-su ] from Infrastructure Business Management Office. Regarding rare earths, the raw materials, we are reviewing -- sourcing them from Southeast Asia. And from U.S. and Southeast Asia, we are planning for a joint venture. And in the U.S., we are also reviewing another business there. In rare earths, there is the mining, the processing in between and producing permanent magnets and all these sections -- all these links in the value chain require a lot of experience and technology. That's why in order to make sure that the business settles in rapidly or quickly, we are working with experts.

And in this process, POSCO International will be working with us in raw materials and other partnerships. And we are also working with partners to create -- to establish JVs to acquire the technology to expand the business. Especially in technology, the important part is the separation and refining. Separation and refining technology needs to be internalized. And for this, we are currently conducting R&D at the POSCO N.EX.T hub, the Research Institute. And with these partnerships, both inside and outside, we will be able to acquire the technology necessary.

Unknown Executive: I am [ Nho Song Mae ] from Marketing Strategy Office at POSCO. Regarding the third question, yes, there is a -- there is a lot of demand around data centers, and this is leading to a lot of expectations in society. Regarding the data centers, concrete and metal rods and structural steel used to be the demand in the past. But right now, what we are seeing is the data centers being built at scale. So internally, we think that the structural steel related to thick plates may be more competitive. So regarding data centers and ESS the new demands, we are making various reviews.

And to gain an upper hand in the market, we are making plans to make -- take the necessary actions. And going forward, not only the exterior steel products that needed to build buildings, PosMAC, electrical steel and interior steel demand is also expected to increase. So we will systematically address these demands.

Operator: Next question is from Heungkuk Investment Securities (sic) [ Korea Investment & Securities ], Choi Moon Sun.

Moon Sun Choi: My name is Choi Moon Sun. So this is finally a good result in a long time. I'd like to ask a question about the steel sector. Chinese security firms have reported today that the government has put out a supply policy. Why? Because profitable companies in China, a list of them show that steelmakers take up a very small portion. And so steelmakers continue to suffer in China. And that is the reason why we believe a new supply agreement may come out of the Chinese government. So in association with this piece of news, how do you project the market, the steel market?

Unknown Executive: My name is [ Nho Song Mae ], POSCO Marketing Strategy Office. So China has continued to cut production. And I think they've also tried to put in some additional measures to deal with additional demand. So rather than cut production, I think they're going to focus on reducing low-grade steel and replacing them with high-grade premium steel. I think this is what the Chinese government is focused on exercising. POSCO is the same, no different. Because of the construction industry slowdown, we are of course, challenged. But because of other industries that exist in Korea, such as the automotive and shipbuilding industries, we are able to focus more on premium steel. Overseas as well, there are some trade barriers.

But despite these headwinds, we are inventing programs to be able to make up for those losses. We're not trying to cut exports anywhere. We want to sell and export as much as possible. That's our position.

Operator: The next question is from Meritz Securities.

Jae Hyeok Jang: I am Jang Jae Hyeok from Meritz Securities. At the CEO Investor Day, POSCO Argentina Phase 3 and 3.4 and there are also plans to expand hard rock lithium production to 30,000 tonnes. Are there already permits or decisions made on the expansion? If there are -- if the decisions haven't been made yet, when do you expect them to be made? And for hard rock lithium, the background for the business only mentioned partnership with OEM companies. I'd like to ask for more detail. And when you will be able to -- when do you expect to receive the approval for the business? Another question is related to shareholder returns.

So you -- so for shareholder returns, you've decided to fix that at 50% and that includes 10% shareholder returns and other percentages for other programs. Do you have a definitive principle for this rule? And you've decided to sell off the equities at your affiliates by the end of the year. How will this fare into shareholder returns?

Unknown Executive: Okay. I'm [indiscernible] from Energy Materials Business Development Office. First, you asked about expanding the lithium business. At the Investor Day, we mentioned that the Argentine brine lithium will be increased to 100,000 tons. And there are Phase 3 and Phase 4 for the Argentine Lithium Business. Regarding this expansion, up to now, we have been producing lithium hydroxide for -- as our final product. But for Phase 3 and Phase 4, our goal is to produce lithium carbonate. And the decision has not yet been made.

We will be undergoing the PFS, the pre-feasibility study to decide what process will be applied by the end of this year, and the FID will be done by the end of next year. And expanding our lithium business using the hard rock lithium. To answer that question, as you have heard, because the spodumene prices are high, there is a profitability issue. So we will be considering the market conditions, our client positions and as well as our lithium producer partners. Though the decision will be made at the end of next year, we will be responding flexibly. That is our decision.

Unknown Executive: So the 10% adjustment ratio, I think you're asking why. Let me try and explain. First of all, as we mentioned, at CEO Investor Day, about a certain percentage of the equity shares that we own at affiliates, we will be selling that off and about 90% will go to CapEx. The other 10% will contribute to shareholder return. And we thought that would generate about KRW 3.5 trillion of cash, and that means about KRW 350 billion will be used for shareholder returns. But once we sell those equities off, we are selling off our controlling shares. And so this can lead to perhaps a decrease in dividend payment as well.

Each year, without seeing an increase in operating profits, we simulated what this would mean regarding shareholder returns. So what would happen to that reduction in equity that we have in affiliates, it amounts to about KRW 200 billion. And because we have set aside 35% to 40% of net profit of controlling interest, this means about KRW 80 billion reduction in dividend payment each year. So equity divestment, 10% of that will go into paying dividends and shareholder returns and measuring that against the losses incurred by selling off those equity shares, the simulation shows us that there is a difference that begins to appear -- a disparate that begins to appear in about 4 years.

So what are we going to do 4 years down the road? Based on our plant operation experience, it takes about 4 years for any plant to get to full scale operation. So by our estimation, we will have profits from the plants that we are building now. In summary, in 4 years, there will be profits that come from our affiliates as well as profits that come from our lithium business, which one will be bigger between the 2? It boils down to that question. And as we mentioned during Investor Day, when lithium is $20,000 per ton, our OP rate is about 40%.

As the holding company, we have the authority to shift our portfolio and to realign our businesses. So from that perspective, 90% of the equity divestment will go into CapEx and 10% to shareholder returns. That is an informed decision that we made. And liquidating or monetizing our equity stake in our affiliates, what is the rationale behind that? Of course, this has to go through the Board and the market is also reacting to this. So at the moment, we are not able to give you a definitive answer. But from our perspective, I think the market is aware and we are aware of the market situation.

So once this is approved and it is put into action, we will be very careful. Once we make this decision, we will also follow all rules and regulations. So this will also go through public disclosure.

Operator: The next question is from KB Securities.

Yong Hyun Choi: I am Hyun Choi Yong from KB Securities. Regarding steel business, I have a question. In the third quarter, you mentioned that it will continue -- it will improve compared to the second quarter. Does this include the cost from the EAF utilization? Does this include the projections regarding Gwangyang operation, the costs associated with it? Of course, it helps to reduce carbon emissions, but this also entails increased costs. So if there is any miss in your business projection, this could be quite fatal. So I wonder how the Gwangyang EAF is going to fare into your business projections in the future.

Seung-Jun Kim: I am the Head of Finance Office. First, in the second half of 2026, the projections, of course, includes Gwangyang operations and the costs incurred from the EAF. And the second question is whether the -- well, there was a history -- there is a record of Gwangyang EAF showing low profits. Well, we are implementing a hot metal mixing technique to produce high-end or high-grade steel. This is our plan. And as of now, the utilization rate is low. But once this rate goes up and we can produce high-grade steel, we will be able to secure profitability.

Unknown Executive: I am [indiscernible] from the International Trade Affairs Office at POSCO. Let me add a little. From June, we began operation of the EAF to begin production of carbon-reduced steel. However, the carbon-reduced steel market is still in its initial stages. So we are currently focusing on promoting this product to the clients -- potential clients. In particular, there are global OEM companies and energy companies. And for them, we are currently doing a test supply for customer verification to expand potential -- expand our sales. The cost increase due to EAF is something that can be addressed with the creation of a premium market.

But right now, there isn't -- the market hasn't developed enough, and there isn't a global standard for it. So we believe that we will be able to make up for the costs. And beginning next year, we will continue to ramp up utilization rate to improve profitability and production volume.

Operator: Next is from DB Securities, Ahn Hoe Soo.

Hoe Soo Ahn: My name is Ahn Hoe Soo from DB Securities. I'd like to ask a question about lithium. So your process is different from conventional method. I wonder what the margin rate is. And Pilbara Lithium is very much dependent on the price spread of spodumene and lithium hydroxide. So what are the cost and profit implications from -- in the ore lithium business?

Unknown Executive: Phase 1 has -- POSCO Argentina Phase 1 and P-PLS Phase 1. Let me address Argentina first. Phase 1 is lithium hydroxide. Phase 2 is TGLC. These are all based on index prices. TGLC is industrial, but the price is the same as PGLC. Our cost is about $3 more than TGLC. So it's profitable. Once Phase 1 or Phase 2 completes, then our profitability is going to only get better. And in Phase 2, we have a new process, yes, but this is a pretty widely used process. In Chile and Argentina, there is a standard profit structure that we are envisioning, projecting, and I don't think it's going to be too hard to achieve that.

Whether the process is going to impact profitability, I don't think that's the variable we should be looking at. It's actually the demand for ESS that is impacting our profitability. In ore lithium, as already mentioned, the price of spodumene, how much of the price of spodumene takes up the price of lithium hydroxide. That is the question. It should be between 4% to 5%. Let's say it's 5% and because the yield is about 85%, about 7x that is the raw materials cost. And so it ends up being about 35% of the total price being the cost of the raw materials.

This is standard in the industry, and it was this way until a certain point in time, but this has come up to about 56%. The raw materials cost was as high as 56%. Why is Pilbara having such a hard time this year? It's because it's gone up to about 70%. Even China is not profitable. When China says it is profitable, they are taking away certain parts in that cost structure. So at this price, no company can be profitable. This is the frank truth. Our current profit structure is dependent on whether large-scale massive mines begin -- rebegin operation and/or if Australia develops new and more mines.

So these are some of the predictions that some expert agencies are making. If this pans out, then we will be profitable, and we will be able to increase our production, of course, in consultation with our automotive OEMs and client OEMs.

Operator: The next question is from Shinhan Investment Securities.

SeungHun Han: I am SeungHun Han from Shinhan Investment Securities. In China, there are -- people are saying that they will make sodium batteries commercially available by next year. And I'm curious if POSCO is also making efforts in that direction.

Unknown Executive: I'm [ Mi Seung-won ] from Energy Materials Business Development Office. Yes, SIB, sodium-ion batteries have been quite craze. But as you would probably know, the outlook is different for each organization. Some do look very optimistically, some are taking a very conservative projection. Regarding sodium-ion batteries, we are considering the outlook and the uncertainties, and we are working closely with our partners to -- for research and development. We can't give you -- we can't talk about this in detail, but we will -- we do have plans to launch CAM and AAM alongside our customers' plans. And regarding the anodes, we have a list to -- we have an agenda to continue R&D.

Seung-Jun Kim: Do you have any additional questions? It doesn't appear that we have any more. It's almost 1:00 here. And Barclays and DKAM have given us online questions. I took a brief look, and it looks like we've answered most of them, but some parts remain unanswered. I wonder if we at the IR Office could reach out to you with that -- answer to that question. So I'd like to close the earnings release meeting today. Thank you, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]