Ladies and gentlemen, now we will begin POSCO Holdings Earnings Release for Q3 of 2022. Today's conference call will begin with the earnings presentation of POSCO Holdings followed by a Q -- question-and-answer session. [Operator Instructions] And now, we will hear the presentation by POSCO Holdings.

I would like to begin by thanking all of our investors for their steadfast trust and support. The third quarter proved to be a difficult time for steel manufacturers due to the war in Ukraine, the 2Q conflict and continued issues in the global supply chain coupled with tighter fiscal policies adopted by states around the world leading to economic slowdown across the globe. At the same time, along with the announcement of ARA (ph) policies in the U.S. in August and the highlighting of the importance of securing critical materials for lithium-ion battery such as lithium and nickel has led to the construction of a cathode plant in the U.S. with GM. For POSCO, which has secured critical materials for EV materials such as lithium and nickel, the third quarter has indeed been a period mix with opportunities. POSCO Holdings has retired 2.6 million shares in August to strengthen shareholder value along with making investments for future growth, including the investment decision for the second-stage project in Argentina in October for lithium carbonate to achieve 100,000 tons of lithium hydride production early than scheduled. However, on September 6, one of the streams in Pohang area was flooded due to heavy rain, which put a temporary halt on the entire operation of Pohang steel mill. In particular, the rolling line adjacent to the stream was submerged in water causing an unprecedented crisis in operation. All members of POSCO as well as POSCO Holdings and the entire group are pulling their energy together with dedication to normalize the steel mill operation. Damage recovery task force was organized in order to stabilize the steel supply and minimize any impact on our customers. The recovery is currently progressing smoothly according to our plan and by the end this year, we plan to resume operation of major plants, including number two HR plant, so that the customer demand could be met with no issue by the end of this year. Following the COVID outbreak in 2020, we were impacted yet again by another Force Majeure event that presents us with challenges. However, all members of our group are coming together to widely overcome the difficulties and we continue to bolster our new growth businesses to maintain our transformation and innovation so that we can leverage this as an opportunity to take another lead forward. Now, Han Young-Ah, Head of IR team will present on Q3 performance. Thank you.

Thank you very much. Let's talk about the third quarter performance. POSCO Holdings recorded consolidated revenue of KRW21.1 trillion, which is a KRW1.8 trillion decrease Q-o-Q. OP recorded KRW920 billion, a KRW1.2 trillion decrease Q-o-Q, as can be seen on Page 4. The decrease is mostly due to the flood as well as the slow demand. The Steel business recorded a revenue of KRW1.5 trillion and OP of KRW1.2 billion. POSCO did see a growth in revenue and OP of Green Materials centered around lithium-ion battery materials. The Energy business also recorded a healthy growth. Before we go into the details of each business, let us take a look at the flood impact and POSCO's recovery plan as well as some major decisions that have been made recently. Overall, the flood impact on Q3 results is estimated to be at KRW583.2 billion, KRW435.5 billion of which is reflected as operating loss and KRW147.7 billion as non-OP loss. Let's take a look at POSCO, first. The loss due to production and sales volume decline stands at KRW220.1 billion, due to the flood in Pohang production has been hiked up in Gwangyang. We did try to offset the loss through slab production. However, because there has been a stop in operation, this has led to a higher fixed cost with a negative impact on profits. And we also have seen that there is a one-off loss of inventory impairment loss of KRW94.4 billion, it has been reflected in Q3 with a maximum estimation. There could be some more reflective in the fourth quarter, but it will be very minor. Repairment and material cost to recover production facilities stands at KRW91.6 billion. Recovery will continue until the year end. We believe that at a maximum, there could be an additional KRW300 billion more…

We will now go into our Q&A. [Operator Instructions] The first question is from Hyundai, Mr. Pat Canon. Your question, please.

Good afternoon. I am Pat Canon of Hyundai. Thank you very much for this opportunity. In your IR materials, you talked about recovery plans for a rolling line. And so this gives me a lot of thoughts. I do have three questions. The first question is, for the next year plan, I'm sure that you are designing the next year plan. There are many uncertainties in the macroeconomics. And so, if we take a look at the steel business for next year, what are your forecast at POSCO? For example, the demand as well as some material costs, what would be the direction next year? The second question is, at POSCO, I'm sure that you have abundant cash, but if we take a look at POSCO Chemical or if subsidiaries related to nickel, you will need more investments for new growth engines. And so, how are you going to support the investments for these new businesses? And for example, are you going to be selling off your shares or will you be issuing additional shares? Are there any plans in the pipeline? Under POSCO Holding, there are overseas subsidiaries, but will you actually be moving those subsidiaries under POSCO rather than POSCO Holdings? The third question is related to lithium. Well, next year, what are your prospects for the lithium prices? And the Gwangyang lithium plant is to be completed next October, when do you believe will be the breakeven point for the Gwangyang factory? For Argentina, I can see that I want to know if everything is going according to plan. And it seems that you will be increasing your capacity until 2030. Will there be any plans to make that happen faster than planned? And last week, we have seen in the news that in Argentina, Bolivia or Chile or South America, they may actually create a lithium organization on par with OPEC. If that happens, what will be the impact on POSCO's lithium business? Will there be any restrictions in bringing lithium to Korea? Will this also have a positive impact in bringing the lithium prices up. So what are your opinions concerning this point? Thank you very much.

Thank you for your questions. First question was about next year's plan as well as our prospects for next year's steel demands. We will go to Mr. Ankit [indiscernible], who is in-charge of marketing strategies at POSCO. And we also had a question concerning the investments for lithium and nickel. I will answer that. And we also had a question related to the impact of a possible organization in South America. We will go to Mr. [indiscernible], for that answer.

Good afternoon. I am the MSO of POSCO. And first of all, let's talk about next year's prospects for demand. In ‘23, we believe that centered around the U.S. there will be tighter fiscal policies around the world and therefore the demand will be impacted by these fiscal policies and the global demand, according to WCS next year there will be a 1% growth. In Korea, we believe that it will be on par with this year. If we take a look at the automotive market, overall, we believe that there will be an increase in production of 5.3%, which is a 86 million. And if we take a look at shipbuilding, we believe that the supply chain still needs to be recovered and there will be a shortage of manpower in the shipbuilding industry. This will impact the demand from the shipbuilding industry. If we take a look at the supply side, we can see that steel makers due to the zero admission policies, all steelmakers, including those from China will concentrate on quantitative growth rather than qualitative growth. And so the increase in the supply may not be as large as we have seen in the future. This may be a long term trend. We have also seen a spike in energy and material costs And so there is a burden and so major mills may actually reduce production rather than try to overcome the materials costs. So overall, due to tighter fiscal policies and other economic factors, this will lead to a slow growth in demand and at the same time the expansion of supply will also be limited and so we will look forward to try and bring up the prices in the first half of next year. And if we see that the tighter fiscal policies are relaxed in the second half that we may possibly look forward to increase in demand. Thank you very much.

Well, concerning the second question for chemical and also new businesses in lithium and nickel, we will need additional investments. How will we procure these investments? Well, POSCO Holdings had did divide the cash. And so the end of this year, we will have 4 trillion at hand and so next year's investments can be financed by the cash held by holdings. If we do need additional financing, then there could be debt taken by the holdings or actually bonds issued. I don't think we have any plans to sell off our shares or possibly issue additional shares. That is not in the plans currently. And so we actually had a question on possible plans of moving the subsidiaries from holdings to POSCO. But we believe that all of the companies related to steel should be under POSCO, that would be an efficient way of management. And so there are various plans that are being evaluated such as legal limitations and strategic considerations, as soon as the considerations are completed, we will make the related decisions through our BOD. Thank you very much.

Good afternoon. I am [indiscernible] in charge of lithium ion batteries. Related to lithium, I think you have four questions overall. Let's talk about these questions. Next year's lithium prices, well, recently we have seen that the lithium prices fell below 70,000. But today, we see that it's actually recovered to 73,000, 74,000 in some markets. And so it has -- there has been an increase recently. After U.S. announcement of IRA, we have seen that in the market, EV companies are looking to procure lithium. And so that actually has led to an increase in prices. There are forecasts that it will surpass the 80,000 mark this year. For next year, we believe that it will be about 64,000. Overall, if we take a look at this year's trends, it will be maintained at least at the 60,000 range. I don't think there are any variables that will lead to a sharp drop. If we take a look at the breakeven point for Gwangyang, that was a question that was asked. In Gwangyang, we believe that we will open two plants in the end of ‘23 and beginning at ‘24. And after we build the plant and complete the plant, the ramp up and the certification takes about 12 to 18 months. And so that will be in ‘25 or ‘26 for us. We already have a demo plant that has been in operation for two years. And so we have been able to shorten the ramp up period through our technology. And at the same time for certification, we have already been working with battery companies through strategic partnerships and so we are working on shortening the period for certification. So ramp up and certification together will happen within 12 months we believe, which means that we will…

Next question comes from Hai Investment Securities, Mr. Kim.

Hello. I am Mr. Kim from Hai Investment Security. First of all, thank you so much for doing your utmost and challenging situation. I have about three different questions. Number one, regarding construction. Recently, CP and project financing have been criticized for lacking performance. And I would like to know what POSCO is doing in response to this? And the second question is, as you have covered, I would like to ask about lithium. So first of all, I would like to ask, for example, Chinese local competitors are jumping into the competition, which is lowering the price of lithium. I would like to know about forecast? And next regarding IRA, so it could be about minerals, it could be about smelting or refinery. So I would like to know what you think the subject of IRA would be in the future. And lastly, regarding upstream steel industry, I have a question. So regarding the Chinese demand, I would like to know how POSCO proceeds for example, the demand in the property market in China, do you think it could pick up in the future? And today, Tesla, Lord, it's price. So after the pent up demand breaks out, there are some concerns that this could actually impact the market situation negatively. So I would like to know about the forecast in this respect? And also the steel industry and the operating profit for next year, do you expect it to go up, go down? I would like to know your forecast. Thank you.

Thank you for the questions. Today, a lot of people are talking about poor performance of PFO of construction projects and you expressed your concern about how POSCO is responding. So we can hear from POSCO E&C Mr. [indiscernible] of Finance team. And next question was regarding lithium and Chinese power market situation. Who could answer this question about Chinese power market situation? And also the processing considerations and the detailed criteria for IRA, how we expect this to shape in the future? I think Mr. Lee Kyung-Seop from LIB Materials business could answer this. And regarding the Chinese property market and steel demand in China, as well as the automotive demand in China in terms of steel products, is this going to pick up? Regarding that question as well as the operating profit for steel industry, I think this could be answered. Do we have approximate figures from our management team? Okay. So this could be answered by Mr. [indiscernible] Marketing Strategy.

Okay. Recently, we had the Legoland incident where many people are now concerned about APCP of construction companies. It's for POSCO E&C. Until now, we have taken a rather conservative approach to our projects and therefore compared to other large construction companies, we have been less impacted. As of October this year, APCP fee or short term bonds that we issued are about KRW520 billion. And for those of them have already been purchased and secured by the securities companies. So they will be acquiring these by the expiration date. So we can be assured about that. However, as for APCP, that has been issued based on our credit. It's about KRW270 billion one's worth. And we had about KRW46 billion one of APCP, which has reached its expiry date and they have already been covered and paid for. So other is, if we have an aggravated situation, we will have to acquire the bonds with our cash in hand. But we -- even if the KRW270 billion worth of the fee becomes a problem, we have no impact of liquidity. We don't have any significant impact on our liquidity.

And as for the next question about China's demand, we haven't really seen the news about the EV demand in China yet. But in relation to this, we haven't really had any concerns so far. if you -- so there is a national holiday until early October of -- early October in China. So we had some short term decrease in the lithium supply in China. So that's what we have heard. As for IRA, it will apply to minerals, including lithium and it will apply to lithium of purity of more than 99%. And according to this, we do satisfy the criteria of the IRA. Therefore, in this context, if we -- for example, have lithium carbonate, then we will be able to achieve 95% which can be sourced from Argentina. And therefore, we do satisfy the purity criteria for the lithium. For ore lithium, we will have 90% purity, so we will satisfy the criteria for our ore lithium sourced from Argentina. And as for the minerals supply to South America, we will have to satisfy the IRA criteria. So we will have to apply the relevant processes to our refinery plan and we have reflected these changes on our business plan.

Hello. I'm Head of Marketing Strategy at POSCO. So I would like to tell you that our operating profit plan for next year is still being established and we expect the first half of next year to be similar to the second half of this year, so not very strong. But we do expect the performance to become stronger in the second half of next year. As for the second question regarding China's property market, as you're well aware, the local government debts in China are stacking up, which is aggravating the situation and the demand. And the party meeting finished concluded yesterday and Xi Jinping basically secured his next term and he will try to uplift the economy and bolster the economy. So we will continue to monitor how the market unfolds. On to Tesla and Chinese EVs supply, this year Tesla and BYD are basically having the biggest production volume in China about 6 million cars and compared to ICE, EV is something that the Chinese government is trying to promote. And therefore, next year, we have a positive outlook regarding the EV demand in China. Thank you very much.

The next question is from NHN, Mr. Yi Jiang Wang. Your question please.

Good afternoon. I have -- I am Yi Jiang Wang as have been introduced. And starting Green Steel, I have a question. Recently, we have seen that in Europe, especially in Sweden, we have had new startup businesses in this industry and a lot of investments are being made. And so the investments are quite active. What is your view on these companies and how will they impact your plans?

Thank you for your question. We would like to go to Mr. [indiscernible]. Are you connected? Mr. [indiscernible], are you connected? Well, if he's not connected, we will go to Mr. [indiscernible], and then we will also here from Mr. [indiscernible] and other members related to this issue later on for their answers.

Well, first of all, for Green Steel and Net Xero, POSCO is working with the 2050 net zero roadmap and so by 2025, we will have one line using electricity and we will also have another line by 2027 using all electricity. That is the plan for Gwangyang (ph). We had the BOD decision this year and so we will sign the contract for relevant facilities next year. If we take a look at Europe, there are startup companies that you asked about? At POSCO, we have high ricks and high racks as well as hydroxide. And we also have the [indiscernible] Forum in Europe, and so we are working with SSAB for joint development. For these smaller companies, we believe that their technology development is very positive. And at the same time, at POSCO, we do have -- we are currently preparing for the net zero master plan and we hope to launch this master plan by this year.

Mister [indiscernible], who is at Pohang, he is connected, I believe. So could you talk to us about our low carbon technologies?

Mr. [indiscernible] has mentioned the major points already at Gwangyang and Pohang. We have two tracks for Pohang. We are looking on developing technologies for low carbon products. For Gwangyang, we are looking on electric lines, which will be completed first in 2025. And so electricity will be used for this line so that we have low carbon emissions. So those are the two types of technologies that are being developed. We can't really hear you well. So could you speak into the micro phone, please? Yes. So were you able to hear any of it? Could you start from the beginning, please? Yes. For Gwangyang, by 2025, we will have an electric line and so it will be completed in ’25 for the plates that are produced for the automotive sector. And for Pohang, we will have two BFs and the two BFs will have technology developed so that we have low carbon products from two BFs. And so that is our plan for until 2023. And from 2030 beyond, we will work on hydroxide (ph) so we will commercialize this so that we can commercialize this through our roadmap. Thank you very much.

Thank you. Next is from Samsung Securities, Mr. [indiscernible].

Hello, I am from Samsung Securities, [indiscernible]. I have two questions. First, thank you for the Q3 earnings presentation. And up until Q4, we will continue to see the impact on Pohang steel mill, which will have a negative impact on our performance. So I think in terms of EBITDA, the cash flow will decrease or cash input will decrease. And so next year, could it maybe have any impact on the investment plan of POSCO for next year maybe could it change or revise the investment plan for next year? And the second question is basically in the same context. POSCO Holdings is increasing its investment in new growth businesses and also POSCO has to increase investment in green technology and as for POSCO E&C. And POSCO Energy, they will have to continue to invest more in the Green Energy business area. And therefore, for the next five to seven years, we will continue to see growing investment across all units in these new growth businesses. So I would like to know about a future investment plan, how you plan to allocate the capital in different investment projects? And also, I would like to know that picture of how it will be financed? Thank you.

Who could answer this question on investment? Maybe from POSCO Holdings, can we hear from POSCO Holdings?

Basically speaking, we do continue to see the beginning of economic recession. We are really at the entry way of an upcoming economic recession and therefore we are taking a rather cautious approach toward new investments. And regarding secondary battery material, lithium and nickel businesses, we do not wish to delay our investment plan or investment roadmap. That is our fundamental policy. And regarding green and low carbon businesses, well, this is really a long term investment that we have to undertake and this is not something that could happen overnight. It's not like a large size of capital can suddenly be invested into these businesses. So maybe in Q4 and up to the first half of next year, we could see a poor EBITDA in the steel industry due to the poor market conditions. However, we will have to continue pursuing green steel and low carbon green technologies going forward. And from the aggressive point of view, some may feel that this will entail a large amount of investment, however, fundamentally we are taking a rather conservative stance toward new investment projects during the economic recession. And I think Mr. [indiscernible] could add to that.

Yes. I am [indiscernible] of investment team at POSCO Holdings. As you have asked, our investment is being done within our EBITDA. However, for our new growth businesses, we do hope to stay with our investment roadmaps. So on a consolidated basis, we have been investing about KRW1 trillion across these different businesses and for the next three years or so, we do hope to have an annual investment amount of KRW9 trillion on a consolidated basis about half of that would go into POSCO steel and some of that would be funded internally as for the new growth businesses, then POSCO Holdings will have to input some capital. And for POSCO Chemical, they do have their, for example, battery projects that are internally financing. As for POSCO Holdings, we are focusing our investment in battery technology and lithium. So that is how we finance. And for any future financing needs, we will make decisions accordingly. But until next year, at least our investment will be covered by our EBITDA. And after that, we will continue to secure additional financing through raising efficiency of our assets? Thank you.

Regarding capital allocation, I would like to add a little bit to that. Until Q3, our consolidated investment volume was about KRW4.4 trillion and of that about half or 50% went into the steel industry -- steel business and about the remaining 50% went into next generation material businesses including battery. And then also 25% -- well, 25% went into green materials and 25% went into green energy. And we will continue with this ratio. As for secondary battery material, the next three years will be the peak of our CapEx investment. And after that, we will be able to cover CapEx with our EBITDA. Therefore, the next three years, we'll see some investment expenditures that are funded through, for example, internal allocation of capital in the context of POSCO Holdings?

Next question, we have [indiscernible]. Your question, please.

Thank you very much for this opportunity. Related to net zero for Steel, I have a detailed question. We have just heard that from 2030 onwards, it will be [indiscernible] and there will also be low carbon steel that is developed in POSCO. Could you share with us some details? For example, will you be using other energy sources for BFs or will there be carbon saturation and carbon capture technologies? So could you share with us some details? And concerning the electric line in Gwangyang, what will be the capacity, the electrical furnace, and will you be using all of the scraps or will you be using the DTRI? And will you -- do you have any plans for investments related to DRI? You also mentioned that half of your investment goes to steel and the remaining half is for new growth businesses. And so the 50% that goes into steel, what is the portion of this 50% for net zero? At POSCO, you mentioned that by 2030, you will be reducing carbon emissions by 25% and reach carbon neutrality by 2050. And so what is the investment cycle for this when will you make the major parts of your investments and when will the peak of your investments be? If you have any plans in place, could you share them with us? Thank you.

Thank you for your questions. Related to net zero, you had very detailed questions. Concerning this, for [indiscernible], we are developing technologies so that we can build a plant after 2030. For the furnaces, are we going towards CCS or are we going to other energy sources rather than coal? Well, concerning that question that you wondered about, along with that question, you talked about the electric furnace what would be the capacity? And will we be considering DRI for the electric furnace? And will we be investing in DRI? Concerning these questions, I think we will have to go to Mr. [indiscernible] and then we will go to Mr. [indiscernible] for the question related to DRI.

I am [indiscernible] in charge of Production Technologies. For the two BFs in Pohang for the low emission technologies. What we are doing is to increase the pellet ratio, so that is being tested currently. And we are also working on using new gases to reduce emissions. And this will happen overall in the furnaces. And we are also working on producing low emission furnaces for the upstream. And so these technologies are under development. For Gwangyang, as we have mentioned, the electric furnace, it's a large scale furnace. And so it will be a way for us to utilize high heat, so that we can send our furnaces from downstream to upstream connecting the two and we could consider DRI, but other energy sources can be mixed and so that is the direction of our technology development. Thank you.

Well, two years ago, we announced net zero and we mentioned that in 2030, we have decided on 78.8 million tons to reduce, that is the standard. And so we will be reducing this by 25%/ And so within our bills by 2030, it will be a 20% reduction. And if we take a look at the overall investment, related to the investments for net zero amongst the investments for steel. Well, we need to look at this in a long term perspective. And so Mr. [indiscernible], I don't know if we have any materials related to this that we have considered.

Related to net zero, we actually invest about 600 million per year, but it seems that we will be increasing this number as we go on. Next year, it will be 1.2 trillion the year after that, it will be about 1 trillion. So overall, we will need to invest 20 trillion to achieve all of our goals. At POSCO alone, we believe that the portion of the investment for net zero will be larger than this. So it will be about 1.2 trillion and 1 trillion in ‘23 and ‘24. So added together, it will be more than 2 trillion. And for beyond ‘24, we have to estimate this again. We believe that for the next 10 years, it will be more than 20 trillion.

Well, today, we had a lot of questions on low carbon emissions and green steel and many of the investors and analysts are interested in this topic and we also expected such interest. And so last year, we had the lithium ion battery value day event. And so I think we need to have echo friendly green steel value day. We will open this in November and that will be an opportunity for us to present more information on this topic and also to have extended Q&A. Concerning DRI invest. Maybe Mr. [indiscernible], will you -- could add to this?

I am [indiscernible]. Well, along the lines of our net zero project, we have plans to use our scrap and HPA. And so if we are to bring DRI from overseas, there is the logistics risk. And so that's why we need HDI format. We need to use gas that is low in cost and we need to think about iron ore procurement as well as an area that has low renewable energy costs. So currently, we're doing a conceptual study. So we need to partner with our companies that can supply these resources. And so after all of this is completed, we can make investments. Currently, we are considering about five to six candidate regions.

Next is from Hyundai (ph) Securities, Mr. Park.

Hello. I'm from Hyundai Securities, I’m [indiscernible]. I have a question regarding Q4 earnings. First of all, our different customers including shipbuilding companies. Well, with that, how are you negotiating our price? And also, will our sales price go up in the next quarter? The second question is, during the presentation, maybe I had misheard about the impairment recovery cost could go up to KRW300 million. I would like to know what that cost would include, sorry, KRW300 billion?

So regarding our price negotiation with shipbuilding companies, and the average price. In the quarter four, we will hear from Mr. [indiscernible].

Yes, I'm Head a Marketing Strategy. With the shipbuilding companies our price negotiation for Q4 is underway and Korean Company H (ph) or Company D, we have completed price negotiation with them and we have completed the supply for Q3. We are currently doing the negotiation for Q4 as for company DH. Our pricing rotation for the second half of the year is not concluded yet. And so by the end of this month or maybe until mid-next month, we will be able to complete our price negotiations. And our fundamental projection is that we will have the similar price or a slightly lower price compared to Q3. As for the sales price in Q4 on Q-o-Q basis, we will have slight decrease maybe KRW50,000. We only concluded about 50% of our contracts for Q4 and we still have our supply and contracts for December. So we will probably see a slight decrease in the sales price. And regarding the recovery cost of the Pohang steel mill in Q3, we had an impairment cost of about KRW95 billion. And we also announced the total cost of recovery. And in Q4, we expect it to be about KRW300 billion and Mr. [indiscernible] could give you some details of the recovery cost.

Yes. As was covered during the presentation in Q4, we expect to see recovery cost of about KRW300 billion. And to give you some details, we have the recovery cost material, cost and other miscellaneous expenditures. In Q3, we only have KRW90 billion, because we only carried out the recovery in September for Q3. However, in Q4, we will see an increasing recovery cost because it will basically until three months of recovery. There are 18 plants that have to be recovered, four have been recovered, 14 plants are still under recovery and that is why we see an increase in the recovery costs for Q4.

Thank you. That was the earnings release for Q3 2022 for POSCO Holdings. I would like to extend my gratitude to all the analysts and investors for joining us here today, and this concludes our earnings release. Thank you.