tylerdurden Posted January 30, 2015 Share Posted January 30, 2015 Based on the initial high level figures, it seems steel operating profit is stable from last quarter but there are bunch of other potential negative stuff: lower energy price impact on Myanmar gas field, fx impact on USD based debt, potential investment portfolio write downs and another tax penalty from government (come on at least pay the taxes right!). I guess we won't know for sure until Feb 5, when they disclose more detailed numbers. (I can't really tell why the company disclose the summary financials first and the details later; I guess they want to torture their investors by leaving them in the dark for a couple of more days :-) ) Although, I am still positive about the prospects of the company, I guess, I should have known more about their diversified business portfolio and their investments portfolio before investing. Lots of moving parts other than steel for this company... I also think decrease in iron ore prices should continue to help with the margins. Based on a report I reviewed recently, like 35% of the total ex-china steel production is based on EAF, which uses scrap material vs Blast Furnace which uses iron ore and it seems the scrap material cost is more stable vs the huge drop in iron ore prices so cost curve of all these EAF based producers will be disadvantaged vs the BF based producers. This factor might be supporting the steel prices vs the iron ore on a relative basis. Of course there are many other factors like transportation costs, FX impact etc. which affects the competitiveness but I found this EAF vs BF difference very interesting. Posco is all BF producer I think. Having some of their iron ore coming from their own mines could actually be a disadvantage though in this type of depressed iron ore market. In the long run it should provide a diversification benefit in terms raw materials resourcing probably. Link to comment Share on other sites More sharing options...
jawn619 Posted January 30, 2015 Share Posted January 30, 2015 Based on the initial high level figures, it seems steel operating profit is stable from last quarter but there are bunch of other potential negative stuff: lower energy price impact on Myanmar gas field, fx impact on USD based debt, potential investment portfolio write downs and another tax penalty from government (come on at least pay the taxes right!). I guess we won't know for sure until Feb 5, when they disclose more detailed numbers. (I can't really tell why the company disclose the summary financials first and the details later; I guess they want to torture their investors by leaving them in the dark for a couple of more days :-) ) Although, I am still positive about the prospects of the company, I guess, I should have known more about their diversified business portfolio and their investments portfolio before investing. Lots of moving parts other than steel for this company... I also think decrease in iron ore prices should continue to help with the margins. Based on a report I reviewed recently, like 35% of the total ex-china steel production is based on EAF, which uses scrap material vs Blast Furnace which uses iron ore and it seems the scrap material cost is more stable vs the huge drop in iron ore prices so cost curve of all these EAF based producers will be disadvantaged vs the BF based producers. This factor might be supporting the steel prices vs the iron ore on a relative basis. Of course there are many other factors like transportation costs, FX impact etc. which affects the competitiveness but I found this EAF vs BF difference very interesting. Posco is all BF producer I think. Having some of their iron ore coming from their own mines could actually be a disadvantage though in this type of depressed iron ore market. In the long run it should provide a diversification benefit in terms raw materials resourcing probably. This is something i haven't really thought about, thanks for the insight tylerdurden. this led me to think about whether whether EAF or Blast furnace is a more efficient way to make steel. Posco might be the cost leader in blast furnace made steel(operating margins of 8% this year compared to 0-4% operating margins of it's competitors) but it seems like the EAF/mini mills have comparable or better margins. (hyundai steel had operating margins of 9.5% and nucor had operating margins of 6%). Maybe it will take a few quarters for the lower iron ore prices to pass through like tylerdurden mentioned and that will lift POSCO's operating margins but the whole thesis for me being long is that Posco is that it is one of the best steel companies in the world trading at .5 book. If it turns out that Posco not only has to compete with it's blast furnance competitors but also EAF mini mills then this whole POSCO as a cost leader might turn out to be not true. Link to comment Share on other sites More sharing options...
phil_Buffett Posted January 30, 2015 Share Posted January 30, 2015 http://www.sec.gov/Archives/edgar/data/889132/000130901415000073/exhibit1.htm for the more detailed numbers thanks for the Report! :) a dumb question i dont get it right now, they are paying 8000 won per share dividend that would be around 7$ and a yield of over 10%? iam missing something ??? Link to comment Share on other sites More sharing options...
alwaysinvert Posted January 30, 2015 Share Posted January 30, 2015 http://www.sec.gov/Archives/edgar/data/889132/000130901415000073/exhibit1.htm for the more detailed numbers thanks for the Report! :) a dumb question i dont get it right now, they are paying 8000 won per share dividend that would be around 7$ and a yield of over 10%? iam missing something ??? The ADR is 1/4 common share. Link to comment Share on other sites More sharing options...
phil_Buffett Posted January 30, 2015 Share Posted January 30, 2015 http://www.sec.gov/Archives/edgar/data/889132/000130901415000073/exhibit1.htm for the more detailed numbers thanks for the Report! :) a dumb question i dont get it right now, they are paying 8000 won per share dividend that would be around 7$ and a yield of over 10%? iam missing something ??? The ADR is 1/4 common share. ah ok thanks ;) that was my mistake Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 31, 2015 Share Posted January 31, 2015 Iron ore and scrap over time reflect one another. Eaf economics have a lot to do with electricity costs as well. Outside of the us bf steel making is usually cheaper even at high iron ore prices. The other issue with eaf is that they are mostly producers of long steels not flat. I believe it's basically uneconomic to make high spec flat steel in an Eaf. Also marginal capacity in slab is nearly always BF so that's what drives prices. BTW Hyundai is bf - that's one of poscos biggest problems. Link to comment Share on other sites More sharing options...
zizou Posted February 5, 2015 Share Posted February 5, 2015 Saw this link on Marketfolly: http://www.fool.com.au/2015/02/04/the-future-of-iron-ore/ Link to comment Share on other sites More sharing options...
jawn619 Posted February 5, 2015 Share Posted February 5, 2015 updated sec filings http://www.sec.gov/Archives/edgar/data/889132/000119312515034562/d868184dex991.htm Link to comment Share on other sites More sharing options...
mani2304 Posted February 6, 2015 Share Posted February 6, 2015 Here is another article http://www.businesskorea.co.kr/article/8927/2-trillion-net-profits-posco-aiming-record-2-trillion-won-net-profits-year Link to comment Share on other sites More sharing options...
RadMan24 Posted February 7, 2015 Share Posted February 7, 2015 Here is another article http://www.businesskorea.co.kr/article/8927/2-trillion-net-profits-posco-aiming-record-2-trillion-won-net-profits-year When you have a great business with smart and able people, they will find ways around obstacles. That would be great to become more integrated in India and drive the economic growth there as well. But it has been one extraordinary challenge. Link to comment Share on other sites More sharing options...
Against the crowd Posted February 7, 2015 Share Posted February 7, 2015 I think the India operations are still few years away. http://in.reuters.com/article/2015/02/05/posco-india-steelplant-idINKBN0L91MZ20150205 Link to comment Share on other sites More sharing options...
topofeaturellc Posted February 8, 2015 Share Posted February 8, 2015 I doubt India ever happens. With iron ore where it is the economics are less compelling than supplying HRC out of SK for the rolling mills. And consider the way you lose money long term on Posco involves the balance sheet and I find it hard to see a scenario in which the India expansion is good for shareholders. The world doesn't need blast furnace capacity. Link to comment Share on other sites More sharing options...
alwaysinvert Posted February 8, 2015 Share Posted February 8, 2015 Seems it will probably "happen" through the backway. They will keep doing smaller more specialized projects in India. Maybe there is some upside to keeping the Odisha thing open in that, I don't know. But I would tend to agree, the political situation for that particular mill seems impossible anyhow. Link to comment Share on other sites More sharing options...
zizou Posted February 9, 2015 Share Posted February 9, 2015 Article on Tata Steel; impact from Russian and chinese steel... http://www.bloomberg.com/news/articles/2015-02-09/tata-steel-falls-as-profit-seen-impacted-by-low-prices-imports?cmpid=yhoo Link to comment Share on other sites More sharing options...
klmehta03 Posted February 9, 2015 Share Posted February 9, 2015 Daily Journal (Munger) sold 84 % of PKX in Q42014 Link to comment Share on other sites More sharing options...
Guest notorious546 Posted February 9, 2015 Share Posted February 9, 2015 Daily Journal (Munger) sold 84 % of PKX in Q42014 when is pabrai expected to file his holdings? Link to comment Share on other sites More sharing options...
alwaysinvert Posted February 9, 2015 Share Posted February 9, 2015 Li Lu increased in BYD on that extreme down day, so maybe they sold to put more in BYD too. No negative tax effect on that sale as opposed to the other stocks. Link to comment Share on other sites More sharing options...
compounding Posted February 9, 2015 Share Posted February 9, 2015 Daily Journal (Munger) sold 84 % of PKX in Q42014 when is pabrai expected to file his holdings? 13th. And agree BYD seems plausible. Bearish part is he makes like one trade a decade... Link to comment Share on other sites More sharing options...
jawn619 Posted February 10, 2015 Share Posted February 10, 2015 From a post on gurufocus The 10-k of DJCO states: ... Company’s investments were concentrated in just six companies and included one investment based in a foreign currency. I think the bit I underlined was not mentioned before. This is interesting because it was previously disclosed that two of their six holdings were foreign manufacturing companies. Now they come out and say one of those investments is in a foreign currency. This implies the other foreign company is listed on a US exchange and they initially bought the shares of both foreign companies on a US exchange (in dollars). BYD would be a likely candidate. It is a foreign company that Munger likes and can also be bought in the US (with dollars). Since: 1) We know DJCO stil owns the same six companies they owned last year and 2) DJCO's current cash position doesn't indicate there was an outright sale we can infer that perhaps they sold one company to buy more shares of another but this wouldn't explain why they now mention the bit about foreign currency. The other explanation is that that some of the investors you mention sold the ADRs of Posco to buy Posco's primary shares in Seoul instead. You see, DJCO reports the holdings of the ADR but not neccesarily the holding of the primary shares. In sum, I wouldn't rule out the possibility that DJCO didn't sell Posco, maybe they just own them direct (in Seoul) now instead of through the ADR. They would do this if at some point the primary shares in Seoul temporarily dropped relative to the price of the ADR and they rolled them over, thereby buying a greater number of shares without spending any money. If I find evidence of that, I'll follow up on this thread. Another reason they would do this is because Posco may be spinning out some shares of publicly traded subsidiaries. If you own the primary shares in Seoul, you get direct ownership of the shares they spin out. With the ADR, you probably get cash instead. Perhaps someone can plot the price of the primary shares in Seoul against the price of the ADR in the US. That will prove if there was a temporary arbitrage opportunity at some point. Also, if Martin Whitman (third avenue) did this, it should show up in their next letter. Instead of the ADR their funds should be reporting ownership of the primary shares in Seoul. just some thoughts. Also the primary shares can convert into ADRs at a ratio of 1 to 4 but not the other way around.(like brk.a/brk.b) I don't see any reason not to own the foreign shares as opposed to the ADRs unless you're a small retail investor who doesn't want to go through the trouble of getting your broker to buy them in Seoul. Link to comment Share on other sites More sharing options...
alwaysinvert Posted February 10, 2015 Share Posted February 10, 2015 I think BYD has been in foreign currency (HKD) all along - that's why it doesn't show up on the 13F. That is, if there aren't any special rules which exempt unlisted ADRs from disclosure, something I have never heard of. If they changed from PKX to 005490, they would probably state that they own two businesses denominated in foreign currencies. Link to comment Share on other sites More sharing options...
easywins Posted February 10, 2015 Share Posted February 10, 2015 Here is the 005490 plotted against PKX (ADR) over the last six months. Both securities seems to have remained pretty well in sync. https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1423593278632&chddm=132&chls=IntervalBasedLine&cmpto=NYSE:PKX&cmptdms=1&q=KRX:005490&ntsp=1&ei=G0_aVOG-NMqUqgGw4YFA Link to comment Share on other sites More sharing options...
RadMan24 Posted February 11, 2015 Share Posted February 11, 2015 Here is the 005490 plotted against PKX (ADR) over the last six months. Both securities seems to have remained pretty well in sync. https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1423593278632&chddm=132&chls=IntervalBasedLine&cmpto=NYSE:PKX&cmptdms=1&q=KRX:005490&ntsp=1&ei=G0_aVOG-NMqUqgGw4YFA Maybe it didn't meet their investment return, maybe competition is heating up in the domestic market, Chinese steel exports causing havoc in the industry? Why would they switch from the ADR to Seoul? Spinoffs are possible, but sales are more likely. Strongest argument. Mild argument is arbitrage or ownership via the Euro or actually owned on Seoul exchange. You think when BYD had the huge sell off they sold Posco and bought more BYD? These things we may never know. Since we don't know them, fact checking and due diligence is still the way to move forward. Link to comment Share on other sites More sharing options...
mani2304 Posted February 11, 2015 Share Posted February 11, 2015 http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3000678&cloc=joongangdaily%7Chome%7Cnewslist1 Link to comment Share on other sites More sharing options...
Guest notorious546 Posted February 11, 2015 Share Posted February 11, 2015 http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3000678&cloc=joongangdaily%7Chome%7Cnewslist1 Who is the rival that the writer is referring to? Link to comment Share on other sites More sharing options...
mani2304 Posted February 11, 2015 Share Posted February 11, 2015 I guess he is referring to Hyundai. Link to comment Share on other sites More sharing options...
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