2Q 2017 POSCO Earnings Release Q&A Transcript July 20, 2017 [ Business Performance ] Q. 2Q earnings weakened QoQ, so 2H performance seems to be more important. What is your projection of 3Q operating profit on a parent basis.

A. We forecast the raw material price will be weak in 3Q, but we will make our utmost efforts to maintain our product prices. Also, with the completion of facility maintenance, production and sales volume will expand. On the back of these elements, the 3Q earnings will move upward from 2Q.

Q. Could you explain about the writeback of the impairment loss on Thainox stock?

A. We purchased shares of Thainox, a Thai STS CR mill, by 2011. Until last year, the company recorded accumulated loss, which we recognized. The amount was 254 billion won, but we wrote it back in 1Q as the stock price rose and the impairment loss was reversed. The condition of writeback is to maintain the price higher than 70% of the purchased price for 3 consecutive months. In 2Q, the effect disappeared, so the operating profit declined.

Q. According to your plan, 2017 is the last year of POSCO's business restructuring. What is the result in 1H and target for 2H?

A. Our 3-year restructuring plan will be finalized this year. In 2017, we have 23 cases left, and 7 were completed in 1H. Out of total 149 target cases, 133 were finished with the ratio of 89.3%. By the end of this year, we will accomplish our target as planned.

[ Market Trend ] Q. Since June, Chinese steel price is rapidly increasing as the oil price goes up. What is the company's projection of market trend for demand industries and do you think it is sustainable?

A. By each demand industry, the automobile is expected increase production to 4.3milion cars and the shipbuilding will still stay sluggish despite recent increase of new orders. Construction sector is buoyant and home appliances is expected to slightly decrease due to weak demand. However, as the recent Chinese steel price is sharply increasing for 10 weeks, the Chinese HR export price to Korea is drastically rising. Therefore, overall we forecast the sales price may be increased due to the sound price level of iron ore price for 3Q.

Q. Backed by Chinese restructuring, steel price currently maintains a strong level. What is your view on the positive impact of capacity cut in 2H? Do you think it will continue in 2H?

A. In 2017, China's steel demand is projected at 680 million tons and production at 800 million tons, similar from last year. The country's official steel capacity reaches 1,150 million tons with the utilization rate around 70%. By 2020, the government is targeting to

reduce capacity by 150 million tons focusing on induction furnaces. When the market turns around, steelmakers tend to increase utilization rate and production. Therefore, it is viewed that the total production volume will be maintained from last year. Meanwhile, due to many countries' tightened regulations on Chinese import, China's steel export volume came down by 10 million tons in 1H. In 2H, we forecast that export will slightly go up but, for the whole year, the volume will be reduced, yoy.

Q : How is the company dealing with the price contract negotiation for the third quarter? In spite of the request of an auto industry for a price cut, the recent business environment has been getting bullish. Give us guidelines on price direction and recent trend.

A : POSCO makes price negotiation mainly on a monthly or quarterly basis for the distribution channel, on a semi-annual or annual basis for the auto industry, and on a semi- annual basis for the shipbuilding industry. We are seeing the price uptrend considering the overall price movement in China and the solid industry demand in Japan although it's expected some resistance from the shipbuilding industry against the price rise. However, the amount of price increase depends on the actual negotiation regarding the bearish market situation in demand industry.

Q. There was a new release that shipbuilding plate price was lifted. Can you make breakeven for the product segment?

A. As Chinese import price is on an increase, our price to the distribution market went up. But the overall plate margin depends on the shipbuilding sector, as it takes up the major portion in our sales. We will negotiate the pricing with our clients for 2H.

Q. As the U.S. trade protectionism is heightened, what are the direct and indirect impacts on POSCO?

A. Currently Section 232 investigation is conducted, and the result will be reported to the president. After the final ruling of A/D and CVD on high margin in August 2016, we stopped supplying our feedstock to UPI. Even so, only 1% of total export volume in 1H was to the U.S. market, which implies that actual impact on us is limited. Indirectly, we may be affected through steel pipemakers, but it is possible that quota system will be adopted even after Section 232 takes into effect. In such case, we will be marginally impacted as well.

[ Raw Materials ] Q. Raw material prices show high volatility lately. Especially coking coal moved from $150/ton to $300/ton. What is the company's procurement policy for hedging and price forecast for coking coal?

A. In March, there was a cyclone in Australia, after which the coking coal price fluctuated severely. As the price volatility is too high, benchmark pricing system is no longer viable. So, Japanese and other countries' steelmakers adopted index-based pricing scheme in June. POSCO will also follow the trend as part of hedging.

Q. Against the forecast for the iron ore price to be stabilized at lower level only a month ago, the price recently rebounded to a $70/ton range. What is the company's outlook for the material in the mid-to-long term?

A. While iron ore price was increased to $93/ton for 1Q, it fell to $53/ton for 2Q, and

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