POSCO plays Blast and loose with its decarbonisation commitment

12 minute read

POSCO, South Korea’s largest steelmaker and biggest corporate emitter, has pledged to achieve carbon neutrality by 2050. However, its short-term strategy does not align with this objective. Instead of going all-in on less carbon-intensive methods of producing steel, POSCO is doubling down on coal-fired blast furnaces. This could see the company added to more investors’ exclusion lists, thereby shrinking the universe of firms willing to buy its debt.

POSCO plans to refurbish two blast furnaces at its Pohang and Gwangyang facilities to help increase steel production to 52 million tonnes annually by 2030. This strategy seems at odds with its decarbonisation pledge. Blast furnaces are a highly carbon-intensive means of producing steel, unlike electric arc furnaces (EAF), which are gaining traction among POSCO’s competitors.

By extending the usable life of its blast furnaces, POSCO is prolonging its investors’ exposure to assets that may become “stranded” as the low-carbon transition accelerates. This could cause its bonds to underperform over time. However, the data so far suggests this risk is yet to be priced in.

What is clear is that POSCO’s commitment to blast furnaces has already led many investors to exclude its bonds from their portfolios on climate grounds. It is possible that as it becomes clear that the company’s production and decarbonisation goals are antithetical, more investors will divest.

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