POSCO's Lithium Breakthrough and Steel Squeeze: A Turning Point, Still in Transition

Argentina's brine lithium turns first profit and RBM swings to surplus, but raw-material costs and an EAF ramp-up keep steel margins thin going into Q3.

PKX · Earnings Call · 2026-07-30

Lithium: From Deep Red to Black Ink

For eight consecutive quarters, POSCO's rechargeable battery materials (RBM) business bled red ink, with Argentina's salt-lake operation the biggest drag. That streak ended in Q2 2026, when POSCO Argentina delivered its first-ever quarterly operating profit of KRW 11 billion and the whole RBM segment swung to a KRW 41 billion surplus. The turnaround was strongly signposted in prior calls. Two quarters ago, management explicitly told the market that "we will not be generating profit anytime soon... our hope is that we will be turning this tide this year." Now that tide has turned. But the sustainability is more nuanced. The Q2 surge came from higher oil-price-linked chemical sales, seasonal effects, and renewed certification momentum. Management warns of a temporary Q3 slowdown due to winter in Argentina and an LP dryer replacement, before full operation and certified-product sales resume in Q4. The key swing factor remains the price spread between spodumene and lithium hydroxide. On hard-rock lithium, the company candidly notes that "at this price, no company can be profitable" when the spread is unfavourable; POSCO Pilbara still posted a small loss. This is a classic cost-curve battle, and POSCO's diversification into brine — now with a cost advantage — is the moat it is building.

Steel: Volume Ramp vs. Input Cost Squeeze

Steel remains the core, and the Q2 picture is one of grinding recovery rather than breakout. POSCO recorded operating profit of KRW 274 billion, up KRW 61 billion QoQ, but the operating margin is still 2.9%, below historical average. The company attributes the pressure to a ~6% QoQ rise in key raw material costs, plus Middle East logistics, FX, and maintenance costs. The good news: crude steel production increased, production stabilised, and domestic sales share rose to 55.5% from ~51%. Q3 guidance is for "maximum production level" of ~9 million tonnes. The bigger strategic story is the Gwangyang electric arc furnace (EAF) and HyREX demo plant. The EAF started operating in June, and while it adds cost today, management frames it as a necessary bet on carbon-reduced steel and future premium pricing:

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.
Unknown Executive, Various Executive Roles · 2026-07-30

This is a long-lead, capital-intensive transition that will not show up in near-term margins. Prior calls already flagged this: in early 2025, management said "the prices have to come up first and plant operation at POSCO Argentina has to be 80% or higher before we can start hitting, black ink. So I think that's going to be next year." That timeline now appears slightly ahead of schedule for lithium, but steel is still awaiting its own price/cost relief.

Restructuring and New Vectors

Behind the earnings, the company is aggressively reshaping its asset base. In H1 2026, 12 restructuring projects generated KRW 475.4 billion of additional cash, including the divestment of PZSS, QPSS, and stainless processing units in China. Management expects KRW 3.5 trillion of additional cash from such projects by 2028. The Q&A session also revealed that proceeds from affiliate equity sales would be split 90/10 between capex and shareholder returns — a shift that will be monitored closely. The company is also planting new flags in rare earths and data centers. A rare-earth partnership with U.S.-based ReElement Technologies (total cost ~$200M, commercial production by 2028) and a JV structure were highlighted. Meanwhile, marketing executives confirmed rising demand for structural steel, PosMAC, and electrical steel tied to data-center construction and ESS. These are small but potentially high-growth pieces of a conglomerate portfolio that for too long depended on Chinese steel pricing.

What Changed, and Why It Matters

The fundamental shift is that POSCO's long-promised lithium payoff is no longer a projection. The first-ever profit at Argentina and the RBM segment returning to surplus validate multi-year capital deployment. The company is also executing on restructuring, with China asset exits reducing structural drag. But the steel core remains hostage to raw-material inflation and trade frictions (EU quotas, AD investigations), and the EAF/HyREX transition adds costs before it adds premium pricing. In other words, Q2 2026 confirms the direction of travel but not the destination. The market will watch Q4 closely, when Argentina's certified-product sales and full-capacity operations are meant to layer on top.