Forging Ahead: POSCO’s Innovative FX Risk Solution

When FX risk began to weigh on POSCO’s global operations, the steel giant partnered with Standard Chartered to implement a tailored invoice financing solution. By embedding cross-currency hedging and optimising working capital, POSCO successfully reduced costs, mitigated risk, and enhanced liquidity management across its global supply chain – winning TMI’s Best Trade/Supply Chain Solution 2025 in the process.

As the world’s sixth-largest steel producer, POSCO operates on a global scale, with subsidiaries spanning diverse markets. Managing cross-border trade and intercompany transactions presented a significant challenge for the steel giant. By shifting from USD to local currencies (THB, INR, CNY) for intercompany trade, POSCO sought to significantly reduce the FX risk for its subsidiaries. But this change transferred FX exposure to POSCO HQ, creating financial vulnerabilities that the company knew needed addressing.

Determined to find a solution that would protect its balance sheet without compromising operational efficiency, POSCO turned to Standard Chartered for a structured financing strategy that would eliminate FX risk while improving working capital management.

A smarter approach

Understanding the depth of POSCO’s challenge, Standard Chartered crafted an innovative trade financing structure that integrated export and import invoice financing with an embedded FX hedge. The goal was to create a synthetic cross-currency funding mechanism that would enable POSCO to match its intercompany receivables in THB, INR, and CNY against its USD payables.

The solution worked in two key ways:

• Export invoice financing: POSCO could discount invoices denominated in local currencies and receive upfront payment in USD, helping to accelerate cash flow and shorten its days sales outstanding (DSO).
• Import invoice financing: to settle its USD payables, POSCO accessed financing at lower rates by leveraging local currency funding. Instead of sourcing expensive USD financing, POSCO could repay Standard Chartered in local currency on the due date, effectively extending its days payable outstanding (DPO) and preserving liquidity.

By embedding FX hedging within these transactions, Standard Chartered ensured that POSCO could navigate the complexities of cross-border trade without being at the mercy of fluctuating exchange rates. This structured solution also leveraged offshore FX markets, enabling the company to access lower-cost funding and optimise its financial operations.

Increasing resilience

For POSCO, this structured trade finance solution has delivered transformational benefits. The embedded FX hedge eliminates the currency risk that had previously created financial uncertainty. The working capital improvements are equally significant – by shortening DSO and extending DPO, POSCO has strengthened its cash flow position, ensuring greater financial stability.

Beyond financing

Furthermore, Standard Chartered’s ability to match local currency receivables with USD payables meant POSCO could secure financing at lower benchmark rates, significantly reducing its overall cost of funding. By leveraging this innovative approach, the steelmaker not only improved treasury efficiency but also positioned itself for long-term financial resilience.

This project deserves recognition as an example of modern treasury excellence. It highlights the importance of collaboration, innovation, and financial expertise in delivering measurable, strategic impact. Thanks to some outside-the-box thinking, POSCO now has a financing framework that supports its global ambitions without the burden of currency risk.