jawn619 Posted January 16, 2015 Share Posted January 16, 2015 Here's something that helped me understand the steel making process and POSCO's cost advantages Link to comment Share on other sites More sharing options...
rsmehta Posted January 24, 2015 Share Posted January 24, 2015 How far does Iron ore, oil, coking coal need to fall until this stock stops trading like it's approaching bankruptcy?? **patience, patience** :-[ :-\ Link to comment Share on other sites More sharing options...
alwaysinvert Posted January 24, 2015 Share Posted January 24, 2015 MT was down 8% yesterday which is a bit more logical since I think much of this came from the Goldman Sachs report where they revised the outlook downwards for the iron ore price. But for MT weak iron ore is net negative in terms of earnings (Aditya Mittal said so), while for Posco it is a net positive. I don't really see how it's warranted to trade down PKX at all on that news alone. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted January 25, 2015 Share Posted January 25, 2015 Has anyone confirmed whether POSCO is really the cost-leader in 2014 or at least recently? Can you post a table or presentation that compares POSCO to global competitors? Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 25, 2015 Share Posted January 25, 2015 It is not. Any integrated producer in Russia is cheaper post the Ruble devaluation. The Japanese are also cheaper with the yen deval. I'm not going to post coat curve data from a third party here, but I'm sure you can find Platts or CRU floating around out there. Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 25, 2015 Share Posted January 25, 2015 Iron ore declining is a rather small net positive for Posco. They mostly operate in markets where marginal production is coming from other non-integrated steel mills. It's something similar to how falling crude prices can benefit refiners but flat low prices aren't helpful. Link to comment Share on other sites More sharing options...
rsmehta Posted January 25, 2015 Share Posted January 25, 2015 Iron ore declining is a rather small net positive for Posco. They mostly operate in markets where marginal production is coming from other non-integrated steel mills. It's something similar to how falling crude prices can benefit refiners but flat low prices aren't helpful. When margins are at 2% and iron ore drops more than 60% over the past year, it's got to have a substantial impact. Link to comment Share on other sites More sharing options...
jawn619 Posted January 25, 2015 Share Posted January 25, 2015 Iron ore declining is a rather small net positive for Posco. They mostly operate in markets where marginal production is coming from other non-integrated steel mills. It's something similar to how falling crude prices can benefit refiners but flat low prices aren't helpful. I would have to agree with rsmetta on this one. On http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10334598-3425-763293&type=sect&TabIndex=2&companyid=6150&ppu=%252fdefault.aspx%253fcompanyid%253d6150 they say that they've spent 85,000 hundred million krw on iron ore/coking coal in the past 9 months at an average price of 100krw/ton of iron ore and 130krw/ton of coal. With iron ore down 35% and coal down 20% from those prices I would assume posco sees significant savings. Could you explain your point clearer? Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 25, 2015 Share Posted January 25, 2015 The price of steel goes down. There is a lag of course maybe a quarter before its fully reflected in hrc prices. But you don't retain that cost savings. Link to comment Share on other sites More sharing options...
jawn619 Posted January 25, 2015 Share Posted January 25, 2015 The price of steel goes down. There is a lag of course maybe a quarter before its fully reflected in hrc prices. But you don't retain that cost savings. So you're saying that steel prices will follow iron ore prices? The steel producers are kind of forced to pass on savings to it's customers? Like if gas prices were still $4 a gallon and crude is under $50 and it takes a couple quarters for the gas station to drop their prices? I would think that if the price of steel were to drop it would have dropped already with the price of iron ore. Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 25, 2015 Share Posted January 25, 2015 Yes. Exactly. Although the lag to full implementation is a bit longer than for refining because most ore bought from the seaborne market is bought on contact not at spot and only references the spot price with a last of several months. Link to comment Share on other sites More sharing options...
alwaysinvert Posted January 25, 2015 Share Posted January 25, 2015 The price of steel goes down. There is a lag of course maybe a quarter before its fully reflected in hrc prices. But you don't retain that cost savings. Of course you don't retain it over time, but compare it to an environment of continually fast increasing input prices, which has been the norm for quite a while. Something which they couldn't pass on because there's mostly no pricing power at all. That effect on margins is very noticeable. Refer back to the stories of a few years back of iron ore oligopolists squeezing steel producers. An environment of down/flat/slightly up input prices should be better for margins. Of course there's still the issue of end product demand, but that's another discussion. Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 25, 2015 Share Posted January 25, 2015 Not really. The recent like levels of profitability outside of the us in steel have a lot more to do with low capacity utilization than import prices. The years coal spiked were actually pretty good years, because they coincided with high capacity utilization. Link to comment Share on other sites More sharing options...
alwaysinvert Posted January 25, 2015 Share Posted January 25, 2015 Not really. The recent like levels of profitability outside of the us in steel have a lot more to do with low capacity utilization than import prices. This hasn't been disputed so what are you arguing against? Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 25, 2015 Share Posted January 25, 2015 The idea that lower input prices are material to Poscos future CF. BTW I own the shares and think they are very cheap. I also think it's just a solid producer. No more no less. The historic high returns are a thing of the past. Probably because Hyundai built a competitor for the local high value added production. Link to comment Share on other sites More sharing options...
alwaysinvert Posted January 25, 2015 Share Posted January 25, 2015 The idea that lower input prices are material to Poscos future CF. BTW I own the shares and think they are very cheap. I also think it's just a solid producer. No more no less. The historic high returns are a thing of the past. Probably because Hyundai built a competitor for the local high value added production. Well, "material" is a fuzzy word. I haven't made the case that raw materials is what makes or breaks the case. However, between iron ore being $1 and $100000, I think I know which is more conducive to good earnings. The pre financial crisis margins won't come back in any near future, yes. This has pretty much been stated by management too. Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 26, 2015 Share Posted January 26, 2015 I'd rather see IO at 1000 and China at 95% utilization than IO at .50 and China at 70% The iron ore is a pass through. Maybe you are making some argument about demand elasticities. I don't know? But A stable low iron ore price doesn't help margins. Link to comment Share on other sites More sharing options...
alwaysinvert Posted January 26, 2015 Share Posted January 26, 2015 I'd rather see IO at 1000 and China at 95% utilization than IO at .50 and China at 70% The iron ore is a pass through. Maybe you are making some argument about demand elasticities. I don't know? But A stable low iron ore price doesn't help margins. And I'd like to see utilization at 294%, but that's completely beside the point because the discussion is what's better ceteris paribus. So, ignoring utilization, even if margin is steady per unit no matter what the raw materials prices are, it's still better if they are lower, because that means cheaper end product, which means you can consume more per dollar. And what effect does that have on capacity utilization (especially for low-cost producers)? So yes, lower input prices do help margins. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted January 27, 2015 Share Posted January 27, 2015 Shouldn't the valuation and this refocusing on the core business with increased likelihood of cash distribution be enough of a thesis without having to guess the impact of higher or lower iron prices on earnings? I could see that kind of initiative being necessary if it was approaching fair value and you were trying to determine whether or not to hold based on future forecasts of earnings, but right now I think that value is its catalyst. I know it's not exactly the same situation, but I recall reading SA articles back in 2010 suggesting that Yahoo was asset rich and extremely undervalued relative to it's holdings in Yahoo Japan and Alibaba without even considering the profitable U.S. business. At the time it traded at $13 per share. Unfortunately, I couldn't find a near term catalyst that I thought would unlock value and I didn't foresee earnings/revenues pick up being the Google-fanatic/investor that I was at the time. I was right about earnings and revenues as they have only improved marginally from 2010 levels; however, the stock has still delivered 33+% compounded annual returns over that time. I don't think investments like Yahoo in 2010 or Posco in 2015 require much ability to forecast future earnings outlook, margins, or input prices. If the company is asset rich, trades at a discount to those assets, and there is reasonable chance that the value of some of those assets will be realized, I think you've simply got to buy and be patient. Especially if there aren't any large, business disrupting threats on the horizon. Anyone disagree? Link to comment Share on other sites More sharing options...
jawn619 Posted January 27, 2015 Share Posted January 27, 2015 Shouldn't the valuation and this refocusing on the core business with increased likelihood of cash distribution be enough of a thesis without having to guess the impact of higher or lower iron prices on earnings? I could see that kind of initiative being necessary if it was approaching fair value and you were trying to determine whether or not to hold based on future forecasts of earnings, but right now I think that value is its catalyst. I know it's not exactly the same situation, but I recall reading SA articles back in 2010 suggesting that Yahoo was asset rich and extremely undervalued relative to it's holdings in Yahoo Japan and Alibaba without even considering the profitable U.S. business. At the time it traded at $13 per share. Unfortunately, I couldn't find a near term catalyst that I thought would unlock value and I didn't foresee earnings/revenues pick up being the Google-fanatic/investor that I was at the time. I was right about earnings and revenues as they have only improved marginally from 2010 levels; however, the stock has still delivered 33+% compounded annual returns over that time. I don't think investments like Yahoo in 2010 or Posco in 2015 require much ability to forecast future earnings outlook, margins, or input prices. If the company is asset rich, trades at a discount to those assets, and there is reasonable chance that the value of some of those assets will be realized, I think you've simply got to buy and be patient. Especially if there aren't any large, business disrupting threats on the horizon. Anyone disagree? My thoughts Right now the market cap is around 20trillion KRW. Posco energy, E&C, and Daewoo are pretty much the only things i see worth anything and combined i'd say they are worth conservatively 6 trillion. All its other subsidiaries are break even or losing money and i think it'll be really hard to sell/realize any value from them(they might even go down in value!). I think with yahoo, Alibaba was a business that was growing very quickly and probably accounted for a higher % of the market cap than the core business. With Posco i think you are still very much betting on the core business because time works against posco's marginal subsidiaries like hyundai heavy. The good news is that the core business doesn't demand much. Let's say you're buying posco's core business for 14trillion KRW. Worst case, If Posco realizes 2trillion in earnings you're buying one of the best steel companies around for 7x earnings. If it does better, you might be paying as low as 3/4x earnings and that sounds pretty attractive for a company like POSCO. I think a better comparison to yahoo right now is EBAY. Paypal like Alibaba is the growth company inside the shell of the not terrible but not rapidly growing EBAY. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted January 27, 2015 Share Posted January 27, 2015 Shouldn't the valuation and this refocusing on the core business with increased likelihood of cash distribution be enough of a thesis without having to guess the impact of higher or lower iron prices on earnings? I could see that kind of initiative being necessary if it was approaching fair value and you were trying to determine whether or not to hold based on future forecasts of earnings, but right now I think that value is its catalyst. I know it's not exactly the same situation, but I recall reading SA articles back in 2010 suggesting that Yahoo was asset rich and extremely undervalued relative to it's holdings in Yahoo Japan and Alibaba without even considering the profitable U.S. business. At the time it traded at $13 per share. Unfortunately, I couldn't find a near term catalyst that I thought would unlock value and I didn't foresee earnings/revenues pick up being the Google-fanatic/investor that I was at the time. I was right about earnings and revenues as they have only improved marginally from 2010 levels; however, the stock has still delivered 33+% compounded annual returns over that time. I don't think investments like Yahoo in 2010 or Posco in 2015 require much ability to forecast future earnings outlook, margins, or input prices. If the company is asset rich, trades at a discount to those assets, and there is reasonable chance that the value of some of those assets will be realized, I think you've simply got to buy and be patient. Especially if there aren't any large, business disrupting threats on the horizon. Anyone disagree? No disagreement if the idea is to make some positive absolute gain with an infinite holding period. People look for catalysts because if it took until 2020 for Alibaba to IPO then YHOO shareholders would still be waiting for the MC and NAV to converge (and returns would be much closer to operating growth of the core business). With these types of plays, you are basically betting on the speed of market to realize the undervalued security as opposed to betting on future operating earnings growth. Neither avenue is necessarily better, just what you believe you are better at identifying or what you believe is more predictable (good companies or catalysts). Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 28, 2015 Share Posted January 28, 2015 iron ore barely matters. The elasticity of demand for steel is really low. Yes. It's a valuation story. Beating a quarter because of the lag in passing through iron ore prices is not why you should own this. It' Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 28, 2015 Share Posted January 28, 2015 I doubt there is a distribution coming either. The CEO needs to deliver. Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 29, 2015 Share Posted January 29, 2015 They missed q4 according to the sell-side. Is just a single line item for Revs, EBIT, and EPS in the pre-announcement so who knows where the weakness was. Full results 2/5 I believe. Link to comment Share on other sites More sharing options...
jawn619 Posted January 29, 2015 Share Posted January 29, 2015 http://www.sec.gov/Archives/edgar/data/889132/000130901415000073/exhibit1.htm for the more detailed numbers Link to comment Share on other sites More sharing options...
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