Posco Holdings Inc
KRX:005490
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Posco Holdings Inc
Earnings Call Analysis
Q2-2023 Analysis
Posco Holdings Inc
POSCO Holdings demonstrated resilience and active recovery in the second quarter of the year, as it achieved an operating profit (OP) of KRW 1.33 trillion. This marks a significant recovery in the steel business, which had faced setbacks from previous challenges like the Pohang mill flooding and the global economic downturn. Now back to full operation, the Pohang mills have contributed to this turnaround, not only meeting the quarterly average OP of the past 20 years but surpassing it, with both domestic and international steel operations showing a comeback.
In line with the global push for sustainability, POSCO has placed a strong emphasis on carbon neutrality. The company is prioritizing low emission steel production, as evidenced by its plans to commence operations of the HyREX pilot plant by 2026. Strategies for producing high-grade, low-carbon steel have been implemented to support the growth of eco-friendly electric vehicle (EV) traction motors. Additionally, POSCO has mapped out a hydrogen roadmap stretching to 2050, aimed at preparing for hydrogen reduction steel in the near future.
Recognizing the immense growth potential in secondary battery materials, POSCO is accelerating its investment to secure a dominant position in this market. Special focus has been placed on lithium, with an ambitious goal to commercialize it within the current year, setting the stage for strong performance as an independent business sector. POSCO also reported significant progress in securing nickel to further bolster its presence in battery material markets.
To capitalize on the booming green vehicle market, POSCO is gearing up to enhance its production of high-grade NO products, crucial for green vehicle motor cores. By 2030, the company aims to construct a system capable of producing 1 million tons of these high-grade materials annually, recognizing the growing demand and limited global manufacturing capacity due to technological patent barriers.
POSCO Holdings has secured a license to develop and operate the Green Hydrogen Project in Duqm, Oman. The project involves producing hydrogen through renewable energy sources and converting it to ammonia, signaling a significant move toward supplying eco-friendly raw materials for steelmaking. POSCO Holdings anticipates project feasibility reviews by 2024 to determine the final project scale, marking a proactive step in its hydrogen reduction steelmaking business journey.
To ensure a stable supply of nickel, crucial to the development of secondary batteries, POSCO Holdings has signed joint ventures for both pyrometallurgical and hydrometallurgical projects in Indonesia. These ventures are expected to contribute to the production of tens of thousands of tons of nickel, positioning the company to solidify its nickel precursor cathode value chain by 2025 and safeguard its supply chain stability.
POSCO has witnessed a moderate rebound in the steel sector, with the company recording an operating profit rate of 8.2% in Q2. Although there was a slight increase in the selling price of carbon steel, the overall steel market remains uncertain, especially given the slower-than-expected economic recovery in China. This has led to subdued demand and a consequent attempt to raise steel prices to maintain profitability.
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Good afternoon, everyone. I am Jeong Ki-Seop, CSO at POSCO Holdings. Before we begin today's earnings call, I would like to extend my deepest gratitude to all of our investors on behalf of the company for your trust and support to POSCO Holdings as well as our operating companies.
Going forward, the company will strive further to promote a balanced growth between steel and the new growth businesses and enhance the long-term corporate value of POSCO Holdings so that we can continue to meet the expectations of our investors.
POSCO Holdings in the second quarter of this year recorded an operating profit of KRW 1.33 trillion. This is because the steel business which had been impacted from the Pohang mill flooding and the economic downturn quickly recovered its quarterly OP of KRW 1 trillion. Such profit recovery in our core business, the steel business, holds a very important meaning for our company. It helps us to maintain global competitiveness in the steel sector as well as generate stable flow of revenue. And when this is coupled with our new business growth strategy, it will indeed create a virtuous cycle in enhancing our corporate value.
POSCO is also striving for excellence in its steel making business to meet the demand of the changing times, which is carbon neutrality, POSCO has placed low emission steel production as its top priority such as early operation of HyREX pilot plant in 2026. The company is also advancing low-carbon product portfolio by boosting the high grade Hyper NO production capacity for eco-friendly EV traction motors. Also to prepare for the commercialization of hydrogen reductions still in the future, POSCO Holdings has developed a 2050 phased hydrogen roadmap, based on specific hydrogen demand outlook. And in the short-term, it's working hard to deliver success by pursuing CCU and reformed hydrogen-enabled blue hydrogen on top of green hydrogen.
Moving on to secondary battery materials business. As communicated during the recent Value Day, the company keeps accelerating investment to gain a strong leadership position in the global market. And especially for lithium, the plan is to commercialize it by this year to deliver strong performance as an independent business. Also, I am glad to announce that significant progress has been made to secure nickel.
With that, I will give the floor to IR team Head who will brief you on 2023 Q2 results.
Good morning, everyone. Let me share with you the 2023 second quarter earnings. So in Q2, POSCO Holdings saw consolidated revenue of KRW 20.12 trillion, up 3.8% quarter on quarter with OP up by 88% at KRW 1.33 trillion. Cumulative investment for the first half of the year were KRW 3.7 trillion on a consolidated basis, and the quarter end net debt ratio was 13.3%.
Let me explain by business areas. First, the steel business recovered to the average level of quarterly operating profit since the past 20 years in domestic and overseas combined, posting KRW 1 trillion in OP, following a loss in 2022 Q4 and KRW 338 billion profit in 2023 Q1. And this is because all Pohang mills were back in full operation, recovering both production in sales volumes, and we had no additional restoration costs this quarter and the selling price increased slightly as well. So not only the domestic but the overseas steel business also showed a recovery posting OP of KRW 93 billion.
Now, as for the green infra businesses, revenue and OP all increased Q-o-Q by 9.6% and 16.5%, respectively. If you look at the green materials, the revenue increased by 2.7% Q-o-Q, but OP declined by 55%. Actually POSCO Future M turned around from their previous quarter's lower profit with OP of KRW 52 billion, up 160% from the previous quarter. However, the initial costs were incurred for the new plant construction for newly established entity like POSCO HY Clean Metal, and the recognition of inventory impairment losses. So this gap will be reduced as the plant becomes operational and generate sales. And POSCO HY Clean Metal began its first shipment at the end of Q2 and is gradually increasing its utilization rates.
Next is the major business activities for Q2. The first thing to mention is the rollouts of low-carbon steel products. In Q1, POSCO launched renewable energy steel with increased use of renewable energy like solar and wind power. And in Q2, we launched a third-party verified low-carbon product called Green certified steel.
Going forward, POSCO will secure electric furnace capacity by 2026 and launch products using more scraps and make products with hydrogen direct reduced iron by completing the HyREX facility by 2030. And we -- it aims to achieve 10.5 million tons in sales of low-carbon products annually by 2030. So building such a proactive low-carbon system is a process transformation for a more sustainable business and the effort to secure our market leading position with technologies and products in the low-carbon product segment.
Second, we are expanding our production for green industries. As you may well know, POSCO currently produces in our Pohang mill 100,000 tons of high grade NO products annually for green vehicle motor cores. And since the demand for high grade NO is expected to increase due to the accelerated growth of green vehicles and there are only about 10 steel makers in the world capable of manufacturing high grade NO due to manufacturing technology patent issues, so we plan to additionally expand our investment in Korea and abroad and build a plan to -- and have a plan to build a system for producing a 1 million tons of high grade NO by 2023 (sic) [2030].
And in April 2022, we broke ground for the construction of a 300,000 ton facility expansion in Gwangyang. And it's almost completed and the operation is planned for the fourth quarter of this year.
Next page, hydrogen business for hydrogen reduction steel. So POSCO Holdings-led global consortium has won a license to develop and operate Green Hydrogen Project in Duqm, Oman. Renewable energy will be used to produce hydrogen and convert to ammonia. For now, POSCO Holdings has secured the project development license. The company will review project feasibility by 2024 and determine the final project scale. Hydrogen produced overseas will be sold locally as eco-friendly raw materials for steel making and POSCO Holdings is looking into green and blue hydrogen. And the Duqm project is the first step in the company's journey to hydrogen reduction steel making business.
Now moving on to Page 8. It shows the nickel dry and wet smelting business of Q2. POSCO Holdings signed a deal for joint pyrometallurgical project in which the company has 49% share in Halmahera, Indonesia. Under the project nickel matte production volume is expected to reach 52,000 tons in June in Sulawesi, Indonesia, a hydrometallurgical JV project in which the company invested 20% share was BOD approved. The JV will lead to nickel MHP 62,000 tons generation. As the world's top nickel producer, Indonesia will help the company secure price competitive nickel by smelting nickel locally. The construction of the two smelting plants is expected to be completed by 2025.
And also in June, POSCO Holdings signed a JV to build a refining plant in Pohang. POSCO Holdings in China's CNGR owns 60% and 40% share, respectively. The plan is to produce 50,000 tons of high purity nickel under the JV, which will help us complete a nickel precursor cathode value chain by 2025, thereby ensuring supply chain stability.
Next, I'll give you more details of performance by company. Page 10 is POSCO. POSCO's production and sales volume went up Q-o-Q. And in terms of crude steel production volume operation rate reached 87.3%, achieving normalization. Other production by product, CR production volume declined due to regular repair of the CR line. In addition, WTP sales and the overall sales mix normalized.
Starting end of June, we've had heavy rain which caused slight delay in product shipment. However, HR sales -- sheet sales went up.
Moving on to the next page. As a result, Q2 OP stands at KRW 841 billion with OP rate at 8.2%. So we saw slight recovery Q-o-Q. As you can see down, Q2 saw no additional flooding-related costs in Pohang Steel Works such as recovery causing inventory loss and crude steel production went up 4.1% Q-o-Q lifting weight on fixed costs. Also, if you look at the price, selling price of carbon steel rose 4.6% Q-o-Q to KRW 1.06 trillion boosting profit rate.
Now if you look at S&P of the company, during Q1, we talked about this as well. S&P hit bottom this January, then rebounded. However, despite the reopening in China, the pace of economic recovery is slower than expected which has dragged down price starting June. H2 steel making market conditions are still uncertain. So if you look at steel price, most of the Chinese steel makers are struggling to generate profit. So despite slow demand, attempts are made to bring up steel price. But as I said, uncertainty remains. If Chinese steel makers reduce production in Q4, the market conditions might recover.
Now moving on to Q2 overseas steel profit. The level recovered Q-o-Q. In particular, PTKP, the Indonesian JV started operation of new HR as of end of last year. So before, it was based on graphite, but it shifted to high grade HR. And high priced HR sales expanded internally pushing HR steel product domestic sales share to 77%. In May, PTKS suffered fire, which leads us to think that domestic sales, which is highly profitable, will continue for the foreseeable future.
Moving on to PZSS Zhangjiagang. It's still in the red due to sluggish market and POSCO Maharashtra enjoyed improved profit, thanks to competitive high grade materials. Indeed high economic growth and strong auto sales drove up the sales of high grade materials, such as carbon steel sheet for autos as well as household electrical goods, and we see better profits.
Next, POSCO International. OP went up 27.5% Q-o-Q. First, if you look at the steel price, as steel price recovered, the global business revenue went up 12% Q-o-Q, which drove up steel trading profit by 55% Q-o-Q. As for its energy business, despite the sales reduction due to the cyclone, which hit the gas field in Myanmar, profit level went up, thanks to higher payback rate of development cost.
Next, POSCO E&C. Revenue went up 9.6% Q-o-Q, but OP went up only slightly. So new order amounts keep going as the Group won more secondary battery plant projects. So it's not more construction, but because of the secondary battery plant projects.
Now moving on to POSCO Future M. POSCO Future M keeps posting steady growth. In particular, with high end N86 share increasing, cathode revenue went up 10.2% Q-o-Q and 86 sales share reached 31% in Q2, which drove up average selling price by 22% Q-o-Q. However, anode sales for EVs dropped by 15% Q-o-Q.
This brings an end to Q2 2023 earnings release presentation. We will now move on to the Q&A session. Thank you.
Now we will move on to Q&A. [Operator Instructions]. So the first question will be by [Park Canon] from Hyundai Motor Securities. Please go ahead.
Hello. I am [Park Canon]. First of all, thank you for sharing us with a good earnings as well as the presentation. I have three questions for you. So as it was explained in the presentation, the Chinese steel prices are showing stable situation. However, there is a lower expectation for the pickup of demand in the latter half of this year. So as for POSCO Holdings, including the price, how do you forecast the latter half of this year in terms of market condition?
And second is regarding the lithium or secondary battery materials. And during the Value Day, all the presentations were very much visible. But I would like to ask a few questions for those who haven't actually attended the event. So in the latter half as well as in the mid to long-term, how do you forecast the lithium prices? And last year, our lithium production capacity was 300,000 by 2030, and you actually increased to 420,000 by 2030. Is this increase explained by our increased capability or is it because of the changing market conditions? And when it comes to EBITDA margin, it is slightly lower than what had been suggested last year. So is it because you factor in the lithium prices as well? So can you explain a little bit about the reason for lower EBITDA margin this year?
And the third question is the following. So most of the steel makers regarding the hydrogen or reduced iron, they're very much focused on shaft flow, but we have FINEX. So I think that we have a different path to take. So when it comes to the liquid reduction of flow, what is the difference between ours and the shaft one? So as for the latter, the capacity will be about 200,000 to 300,000 tons. So I would like to actually have your take on this matter as well.
So regarding the demand forecast, it will be by [Han Dong Ng] from the Market Strategy Office is going to answer. Regarding lithium prices outlook, the answer will be given by Lee Kyung-seop who is in charge of the lithium -- Lee Kyung-seop in charge of lithium materials businesses. And as for the answer for the third questions regarding the HyREX, it will be [Tom Bong Su] from Steel Production & Technology Strategy Office from Pohang will give you the answer.
So let me first share what the market conditions or outlook for the latter half. So until June, the price was going down continuously, but after July, the global steel makers actually made efforts to increase the prices, because of the cost pressure. And as for Europe, actually, we saw a stop to the 12 consecutive week of price turn. And [indiscernible] is also making efforts to increase steel prices. And there were also some price increase cases coming from China.
So from July, we see a rebound of the distribution prices from China as well as from Europe as well. Fortunately, July 18th in China, steelmaker, there was actually a commitment to see the steel price recovery. And there was also a commitment made to continue with the restructuring as well. So when it comes to the latter half of this year, it is very much dependent on how effective the economic recovery plan in Korea -- so in China will take. And also the cut in the production of Chinese crude steel.
And there's also the FX factor as well and we consider the FX factor as an important factor for the next semester as well. And the low yen, Japanese yen is also an issue as well. And there was a lot of Korean steel going to Japanese market, but there was the internal adjustment mechanism to band the lower, the import of Japan of the steel. So there are some concerns surrounding this issue. But when it comes to the Japanese actually products, it's very much limited for the use of the shipbuilders and so forth. So we decided to maintain our August price and we will continue to strengthen our relationship with the clients to defend the domestic. And so we believe that the domestic market will be less impacted. And as for the automotive sector, the automotive sales will increase. So we believe that the steel plates demand will be quite good. And when it comes to the shipbuilding, the new ship prices are also increasing as well recently. So if the shipbuilding sector actually sees a higher profit, that will not very much impact us. But since the construction sector and also household appliance sector are showing a downturn recently, we believe that these sectors will need some time to recover.
So I would like to share with you the answer for lithium. I think you asked three questions. So first is the lithium price outlook for second half and in the mid to long-term. So this year and next year, the lithium prices, as for the FX market and with McKinsey outlook, it will be about $50,000 to $40,000. And in the mid- to long-term, by 2030, for example, we look towards like US$27,000 to US$30,000 range. But since there are lots of changes in the market, it's very difficult to give you a long-term outlook. But the EV demand that we see, as for the EV demand, there was the economic downturn and there was a reduced subsidies in Europe and China. And there was a drastic actually downturn of the EV sales. But things have turned around and by end May, the EVs were sold in 480,000 in numbers. So that's about 40% increase in sales of cars and also the 50% increase in sales of batteries. So overall, you can say that the EV sales will also increase by 42% this year. So, the market expects about 15 million units for EVs. So we believe that there is a growing demand for EVs as we had planned. So it actually surpasses the target.
But as for the Chinese lithium or lithium in China, it is very much fluctuating according to the domestic -- Chinese domestic market conditions. So when it comes to the supply, the supply is going up. So, I believe that the lithium prices will hover around $40,000 to $50,000 in the market. And the reason we expanded our lithium capacity to 430,000 by 2030 is from -- so that was an increase from 300,000. That was because as we implemented this business, so we came to gain more confidence and commitment to this business. That explains one of the backgrounds. And we plan to become a global top three lithium player by 2030. And as for the [indiscernible] and the Chinese competitor, they are like global number one and number two. And their goals have also been adjusted upward as well. There's -- they have adjusted to 500,000 for example. So that is why we are also increasing our target in line of the trend. But one of the biggest reason is that we want to apply a bottom up approach to all of our plans and projects and that is what we are doing. So we believe that the goal that we said is quite feasible. And the EBITDA margin was lower, because as I said in the lithium price outlook in the mid to long-term, actually, the EBITDA margin was lower due to that outlook as well compared to our target planned or set last year.
Hello. I am [Tom Bong Su] from Pohang. So I would like to answer your question. A lot of the global companies are going for low-carbon products and many steel makers are very much committed to achieve net-zero and that is why they are accelerating the hydrogen reduced iron projects. But there is the ESF type, which is our type. And there is a shaft type and EAF, electric arc furnace type done by the EU. So these are the two major types. But the biggest difference between the two is that as for the shaft type, we have to use a very high quality iron ore. So that is why, there is a limited reserve at the door. And that's the case. And as for the fluidic, we have to -- we can actually use lower quality. So there is not much like a limited access to reserve. So that is one of the advantage that we have. And as for the HyREX and the electric arc furnace, you mentioned about the size. As for the EAF, we have a lot of knowhow in running. So there is a good knowhow accumulated to the FINEX, and we also have the knowhow of the electric arc furnace. So if we combine all of these knowhow, so there will be actually a synergy. And we believe that we will be able to accelerate the overall speed of the shaft furnace. So when it comes to the HyREX and if we consider it as 100 in total, then in terms of like cost or technological advantage and in terms of development speed, if we factor in all of these factors, we believe that we will be able to -- we have secured a technology that is quite leading. Thank you.
Thank you very much. Now we'll move on to the next question. From Yuanta Securities, Mr. Yi Hyun-soo will ask questions. You have the floor.
Yes. Hello. My name is Yi Hyun-soo. So I have about three questions. First about POSCO. So you said that the sales recovered to about 8.3 million, and the volume will also reach about 9 million. So if -- do you think that the sales will recover in H2 of the year? Do you have any specific numbers in terms of sales volume? And also, you talked about this during the presentation, but results recovered in quarter two. And what about the H2? Do you see that in H2 the results will even increase compared to Q2?
And also, I have a question about lithium for secondary batteries. So in the mid and long-term, so now, brine lithium, the production capacity will be about 100,000 and others have to come from ore, and so on and so forth. And from what you have mentioned so far, so of course you keep saying that brine is the most profitable. However, now we see more production volume for other elements as well. So if you look at Argentine, maybe it's a project that we carried out long time ago, and is that because of profit level that you're making such a decision? And in the mid and long-term, how would the share be between iron ore and brine?
And last but not least, recently, not only POSCO Holdings, but also we've seen the share increase. So we are seeing a rally of the share price. And you said that it's about 70%. And for now, well, we do not have a financing right away. But in the past I believe that the acquisition cost has changed. So like for affiliates, do you plan to adjust the shares? So that is my last question. Thank you very much.
Yes, thank you very much for the questions. So the first question was about, the H2 sales volume outlook and also any room to improve performance in H2. So, Mr. Kim Seung-Jun of the finance team will give you the answer. And the second question was about the lithium and you talked about the EBITDA margin. And Mr. Lee Kyung-seop will give you the answer. The Head of LiB Materials Business will give you the answer. And for POSCO Inter Co, Mr. Jeong Dae-Hyung will give you the answer. He's the Head of the Corporate Strategy team.
Yes. Hello. Well, as for H2 sales volume outlook, well, if you look at H1 in Q1, operation did not recover fully. So because of that, it did not fully normalize, but it normalized in Q2. So we were able to rebound. But in Q3 and Q4 compared to H1, we won't have much repair of the facilities. So compared to H1, we do believe that the sales volume will slightly go up. But then, if you look at the China's reduction of production or expectations for economic recovery in H2, well, if we were to consider that, I do believe that in H2 sales volume will slightly recover, and also for H2 performance. Now in Q2, the steel market conditions hit bottom, but it bottomed up. And also if you looked at the raw materials and iron ore, the price stabilized. So the low cost raw materials consumption may recover. And that will bring an upward trend to the sales volume for the company. And as a result, we believe that we could drive up the cost slightly in H2. So we do believe that in H2 we'll able to post a better performance than H1. That's what we are aiming for and we do believe that it will going to happen. Thank you.
Yes, about lithium and the price for lithium, and by 2030 the lithium project goal is as follows: So hundred thousand tons of lithium and ore, or we have 220,000, and we have clay lithium as well as the low type, so recycle about 30,000. So that is the mix of lithium.
Now, if you look at brine lithium, the reason why we do not increase the share of brine is this: So now the plan is at 420,000 and we want to make the minerals available and we wanted to attain a reasonable goal. But if you look at Argentine, Bolivia, and Chile, while these three countries produce the most brine. And for Argentine, they have small scale mines, where also the lithium content tends to be low. So the quality is low for some mines. And for the large scale, the high quality ones, we see depletion of such as salt flat.
So in Argentine, we plan to increase the size at a smaller scale, but we don't see any new opportunities for big size saltwater lithium mining. And for Chile, we are now in the process of winning the license for mining rights. And once that is complete or over, we believe that instead of transferring that to the private sector, Chile said that the government will take the ownership. And of course if they were to open the bidding to the private sector, then we could join the biding. However, we don't have any plans for that. And for Bolivia, now the product itself has been nationalized. So we do not see any potential opportunities in Bolivia.
Now we have Australia and [indiscernible]. So for instance, North America, we have mining lithium and we plan to focus on those locations and strike a deal with the local companies. And as for the non-traditional lithium, we do see high share in North America. So the plan is to work with the mining companies to carry out projects.
Now, you talked about EBITDA, for brine, of course it's high. It's only natural. Because the lithium processing from the mine, it's just one single process. So mining and brine, they go hand in hand, which is why EBITDA is high. And for ore, that takes second place of EBITDA. So you have profit from mining and also you have profit from ore, and you have to split the two, which is why for ore EBITDA is lower. And for brine, well, we haven't kick started the project. However, the project margin rate, EBITDA is about 60% and over. And that includes processing as well as mining. So if you look at the margin then brine is the highest then ore and then non-traditional lithium. So that would be the order. Thank you very much.
Yes. Thank you. So you talked about the possible adjustment of shares. And after we kick start the launch of the surviving company, we have been working on the stock governance. But then given the share price change and also the funding and the ownership, well, you talked about that. But anyways, from that perspective, we do not have any plans to adjust the shares.
So that would be all for me. Thank you.
Thank you. Next question please.
Next question will be from HI Investment Securities, Kim Hoon-Sang. Please go ahead.
I have a few questions. So in the beginning of this month, you said that, you are going to invest about KRW 121 trillion by 2030. So you actually unveiled your investment plan. So I know that you haven't executed all your investments. So I would like to know how much of that you have invested, and can you also provide us with the breakdown of your investment?
So the second is regarding the lithium sales. So when it comes to production, you actually mentioned about it, but -- and you also elaborated on how you are going to produce lithium. So you said that by 2023, it will be about 160,000 tons. So I would like to know if you have any like mid-term like milestones? And can you elaborate more on that as well?
And third is regarding the energy sources, especially in terms of renewables as well as offshore projects, what are their share in our overall revenue? And how much of these projects and businesses are ongoing? And how are they being accelerated? And what can we expect in terms of revenue from these businesses? Thank you.
Regarding the first question, regarding CapEx, so that will be Jeong Dae-Hyung, Head of Corporate Strategy team, who is going to answer and ask for the lithium sales and production that will be, of course, by Mr. Lee Kyung-seop of the lithium battery materials business. And the third question will be answered, so regarding the offshore project will be by [Han Dong Ng], the Group Leader of marketing strategy office.
I am Jeong Dae-Hyung from Corporate Strategy team of Holdings. You mentioned about the breakdown of KRW 121 trillion of CapEx. So that can be divided into three. So there is the steel, the secondary materials and green infrastructure. And for each segment, by 2030, if you look at the volume of CapEx, so steel will represent about 35%, secondary materials 46% and green infrastructure 15%. So that will be the breakdown of our CapEx.
And if you break further down the steel, in order for green steel that will be 20% and for the growth investment 30% and recurring or operational investment will be the rest. And when it comes to the secondary material, battery materials, so basically the anode, the cathodes and the lithium, so we'll get the investments on an equal basis. So that will be about 70% or more of the entire secondary materials CapEx. Thank you.
Now about the lithium production capacity. So currently at Gwangyang [PPLS], it's about half of the 43,000 ton will be completed by October this year, so that's Phase 1. And next year it's going to be sequentially completed for construction. And we also have 25,000 tons expected for next year as well. And as for recycling, 2,500 tons. It has been actually completed and we are currently in the ramp up process. And in 2026, there is additional 60,000 and also 10,000 for recycling tons expected.
But when it comes to lithium, when we actually build the process, the ramp up and also the licensing, all of that takes about 12 months. So at the time of completion, the production will gradually increase. And even though without the certification or licensing, we can actually sell these products with a little bit of a discount, but we actually consider about one year for all the production to be stabilized. So it will be by 2025 for when all of the things that we produce, that is 166,000 tons to be completely sold.
Regarding the energy steel. So we believe the energy actually market to be very important in terms of our strategy. And actually, we have a separate entity working for the energy steel materials business. And actually for this year, we run about 1 million tons for 700,000 for solar and 300,000 for wind. And wind will be actually increased by threefold by 2030 and PV will increase by double by 2030. That will be the market growth. So we want to be in line with the market growth and we also hope to achieve -- increase our goal to 1.5 million and also to increase the PV goals by -- or solar goals by twofold. And when it comes to wind power, we have Greenable brand separately launched and rolled out. So as for the wind power market, we consider it to be very important. So overall, if you look at the growth potential, the Korean market or domestic market is very much limited.
So the Korean market will be about 20% and we'll focus more on the European as well as Americas. So there is Ørsted and Vestas, the big wind power turbine manufacturers. We want to actually collaborate with them so that we can focus on the substructures for the offshore projects. And when it comes to the growth potential, we believe that it's very, very promising. Thank you.
Do we have additional questions? Do we have more questions? Next from Eugene Securities, Mr. Lee Eu-gene will ask questions.
Hello. I have about two questions. So first for recycling. So on Monday of last week, you said that you will handle black powder and the total will be about 10,000 tons. And is that included to the 30,000 tons by 2030 goal? And also I have a question about recycling margin. So if you look at the sales of black powder, as of Li-Ni, it's about 70% or 70% nickel. So that's how it's being sold right now. And I would like to know more details about that and also the recycling margin. Thank you.
Yes. So for recycling and for lithium, you asked a few questions. And Mr. Lee Kyung-seop, Head of LiB Materials business will give you the answer.
Well, for recycling, so by 2030, the goal is -- so it depends on the type of battery, but we have N62 target, about 70,000 tons of total minerals. And cobalt takes up about 10,000. So yes, it is included in the 30,000. And for cobalt, we haven't released any plans yet, but for cobalt, we plan to recycle. And then during nickel refining, we can then get cobalt, which is why we don't have it as a separate business.
And also the recycling margin, it's not a stable margin, but the hurdle rate, that's 9.98%. And together with our new businesses, it would be approximately about 15% to 20%. That is the target, but black mass and scraps for recycling, the prices keep fluctuating. So, I can't give you the exact number for now.
Next question will be by [Kim Young-ha] from Morgan Stanley.
Thank you very much for giving me the opportunity. I would like to ask a few questions. The first is regarding the Gwangyang lithium business. So with Pilbara, you actually, we see a slight delay in the ore price negotiations. So we have three months before the production. So when will this price negotiations or contract negotiations end with Pilbara? And second, regarding the Argentinian lithium business, I would like to know about the latest updates on the margin as well as price structure. And you mentioned about the mid to long-term actually strategy. So what is the profit level that you're looking at in the next two to three years? Thank you.
Regarding the Pilbara PPS, the ore price. Actually, initially, we actually agreed on the price structure in 2021. But in 2022 you see that the lithium ore price is going up recently and we're currently negotiating and the negotiation is underway. So we believe that it will be concluded by mid-August latest, because in the beginning of September, we have to actually agree on the initial product so that we can actually complete the construction and go ahead with the test. So you can say that the negotiations are under its final stage. And when it comes to the margin structure, it may vary depending on the price negotiation outcome, but there is not much change compared to the initial cost structure. So as for the details, we will be able to share it with you once everything is finalized. Thank you.
Next from Marshall Wace, Sean Jou will ask a question.
Hi. Thank you. This is Sean from Marshall Wace. I just had a quick question on: First, the precursor self-sufficiency target by 2030. So I understand that there is a JV with CNGR. But I just wanted to understand as a percent of total expected output for cathode, how self-sufficient will you be in terms of kind of precursor? And the second question that I have is in terms of CapEx, the KRW 121 trillion. You guided sort of the split between steel secondary materials and green infra. But I just wanted to understand in terms of the funding profile, how much will come from internal cash flows versus raising of additional debt versus any other potential funding mechanism for this big CapEx plan going forward? Thank you.
Yes. Thank you very much. About precursor, yes, you asked a question about cathode. Mr. Lee Kyung-seop, Head of LiB Materials Business, will give you the answer. And for the second question about the CapEx. Is it going to be internal cash flow, or are we going to borrow some debt or liability, and so on and so forth? Now from POSCO Holdings, Mr. Kim Seung-Jun, Head of Finance team will give you the answer.
Yes. For precursor, for now for precursor, by 2030, the plan is to have about 460,000 self-sufficient precursors set, that is about 50%, that is the target. And the reason for that is -- for cathode, so we have some external contract for cathode. So we can source some cathode from the outside. And depending on the market conditions, for certain volume, it will be spot purchase so that we meet the demands of the market, which is why the number 460,000 came up. And nickel, as well as other raw materials needed for that, we have secured the raw materials. And for precursors, so we have Gwangyang, about 100,000 tons. And in Gwangyang, we will also complete the construction of the plant by next year. And while you asked the question about self-sufficiency of precursors, but anyways we do have the production technology and capacity to do that. So we will go hand in hand with cathode plant construction, and we plan to expand the capacity going forward.
Yes. My name is Kim Seung-Jun, I'm the Head of the Finance team. So about CapEx, you asked a question about that. So first and foremost, so what we have, we have holdings has about 4 trillion and POSCO about 9 trillion. So in total we have about 13 trillion in reserve. So we do not think that we need to rely on borrowings or any other sourcing for now. But then going forward, when the time comes, yes. So liability, we plan to take out more liability, that is the first priority. But then we have to make sure that our credit ratings does not slip. And at the same time, we may use our shares, but that's the next step in the far future.
That would be all for me. Thank you.
Are there any other questions?
There are no further questions. [Operator Instructions].
Well then, with that, we would like to wrap up the Q&A. Thank you everyone for your participation today. So we will keep in mind all the questions and the comments that you have made so that we can open up a better future for POSCO. So with that, I would like to wrap up and close the second quarter earnings call release of POSCO Holdings. Thank you very much.