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POSCO predicts global steel market rebound in Q2

POSCO, the world's third-largest steelmaker, sees an improving global steel market in the next three months, after bottoming out this quarter, and is considering reducing price discounts as the recovery takes hold.

March 28, 2012 / 02:29 PM IST

POSCO, the world's third-largest steelmaker, sees an improving global steel market in the next three months, after bottoming out this quarter, and is considering reducing price discounts as the recovery takes hold.


The Korean firm last month described the first quarter as its "most difficult" earnings period, hurt by weak demand from shipbuilders as Chinese growth cooled, and due to the euro zone crisis.


But Hwang Eun-yeon, Chief Marketing Officer of POSCO, told the Reuters Mining and Metals Summit on Wednesday that China's weaker economic growth target would only have a "pyschological impact" on the steel market.


"The global steel market seems to have hit the bottom after a series of falls in steel prices halted in China," Hwang said.


China this month trimmed its 2012 economic growth target to an eight-year low of 7.5%, raising concern of slowing demand for steel in the world's top consumer of the metal.


POSCO, in which billionaire investor Warren Buffett's Berkshire Hathaway owns a stake of around 5%, will keep operation rates at full capacity to produce a record 38.3 million tonnes of crude steel this year, he said.


Hwang, who joined the firm in 1987, also said POSCO planned to raise its steel making capacity by around 75% to 70 million tonnes in 2020.


Steelmakers in Asia and Europe have curbed production in recent months as a slowing global economy hit demand and cut steel prices.


But Hwang said South Korean steelmakers including POSCO aimed to reduce discounts in prices as the automotive and shipbuilding sectors helped support demand.


He also said that POSCO's contract prices of iron ore and coking coal fell slightly for April-June imports but forecast prices would now remain steady for a while.


MAY CONSIDER BUYING OVERSEAS STEEL MILLS


Hwang said the firm could consider buying overseas steel mills if needed, as part of plans to lift capacity by 30 million tonnes over the next eight years.


"This could be green field and brown field ... and we are making plans now," Hwang said, without elaborating.


Hwang said that POSCO, which ranks after ArcelorMittal and Baoshan Iron & Steel Co Ltd (Baosteel), would not adjust list prices for the time being.


In April last year, POSCO raised domestic steel prices by 16-18% to reflect surging iron ore and coking coal costs, but the sluggish demand particularly from shipbuilders forced them to sell at a discount.


Park Hyun-wook, an analyst at HMC Investment Securities, said it would be difficult for POSCO to achieve higher prices given sluggish demand and softer raw material prices.


POSCO CEO Chung Joon-yang in January unveiled a plan to achieve 200 trillion Korean won in revenue in 2020, including 120 trillion won in the steel business.


But the firm reported a smaller-than-expected 33% gain in profit for the October to December quarter.


POSCO's parent-basis operating profit is expected to slump by 44% to 515 billion won for the January to March period, from 921 billion won a year earlier, according to a consensus forecast by Thomson Reuters.


Hwang said the expected weaker performance was mainly due to foreign-currency related losses as a fall in the Korean won raised the cost of importing raw materials.

Shares in the company have fallen 8% this month alone, lagging a flat broader market.

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