Moneycontrol PRO
Access insightful & curated financial content with Moneycontrol PRO at just Re. 1/- per day. Use code PRO365.

Posco sees 'severe' year for steel industry

Posco, the world's fourth-largest steelmaker by output, has warned of "severe" competition for survival in the industry this year, but the South Korean group expects its own earnings to improve significantly in the first quarter.

January 31, 2013 / 03:12 PM IST

Posco, the world's fourth-largest steelmaker by output, has warned of "severe" competition for survival in the industry this year, but the South Korean group expects its own earnings to improve "significantly" in the first quarter.


The company on Tuesday reported worse than expected fourth-quarter earnings and cut its 2013 sales forecast by 10 per cent to Won32tn ($29bn) as the industry grapples with an "unprecedented slump".


Net profit dropped 33 per cent to Won513bn in the October-December quarter from about Won767bn a year earlier on a parent basis, while sales fell 20 per cent to Won8tn. For the full year, operating profit fell 36 per cent to Won2.8tn on record sales of Won35.7tn. Net profit was Won2.5tn in 2012, down from Won3.2tn in 2011.


More News From Financial Times
Posco / China Steel - steel-away
Posco seeks stake in Canada iron ore mine
Posco-led group secures Canada mine stake
Outokumpu urges patience on profits
Mittal upbeat on US growth


Posco said weak demand and industry oversupply cut prices of its steel products by about Won100,000 per metric tonne last year.


"Global competition for survival this year will be more severe than ever," said Chung Joon-yang, company chairman. "But we will try to turn this crisis into an opportunity by securing profitability and growth."


Posco said that, at a group level, it would boost investment this year by 11 per cent to Won4tn in a push to stay competitive.


Mr Chung expects Posco's earnings to improve "significantly" in the first quarter from the previous one, helped by lower raw materials costs and recovering steel prices in China. He added that Posco was in talks with customers to raise the prices it charges for steel.


Despite the sharp industry downturn, Posco remains one of the most profitable steelmakers in the world with an operating profit margin of 7.8 per cent. ArcelorMittal and Japanese steelmakers were unprofitable for the first nine months of last year and on track for full-year losses, while oversupply eroded profits at Chinese steel producers by 37 per cent last year, according to recent Chinese government figures.


Global steel prices began to recover last month amid signs China's economic growth is picking up after slowing for seven quarters. Industry forecasts are that global demand will grow about 3 per cent this year on the back of inventory adjustment in China, th*e world's largest producer and consumer of the commodity. But analysts expect price rises to be limited.


"Demand will increase if the global economy rebounds this year. But steel prices are not likely to recover much any time soon as demand remains weak relative to supply," said Moon Jung-up at Daishin Securities.


Analysts expect Posco to remain active on the acquisition front this year to reduce its exposure to volatile input prices. It has made investments in Australia, Brazil, Canada and Africa as it aims for control over half its raw materials by next year, from a third currently.


Most recently, a consortium led by Posco and China Steel agreed to pay $1.1bn for a 15 per cent stake in a Canadian iron ore mine owned by ArcelorMittal.

Shares of Posco slipped 0.1 per cent on Tuesday, while the benchmark Kospi index rose 0.8 per cent.

first published: Jan 31, 2013 03:12 pm

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark