Bloomberg News

Posco Profit Gains on Higher Steel Prices, Unit Earnings

July 22, 2011

(Updates with company comment in fourth paragraph.)

July 22 (Bloomberg) -- Posco, the world’s third-biggest steelmaker, posted a 22 percent gain in second-quarter profit, aided by higher prices and earnings from its units.

Group net income rose to 1.37 trillion won ($1.3 billion) in the three months ended June 30 from 1.12 trillion won a year earlier, the Pohang, South Korea-based company said today in a statement. Sales gained 58 percent to 17.05 trillion won.

Posco, which raised the prices of benchmark hot-rolled steel plates by about 18 percent in April, expects global demand for steel products to recover after declining in the third quarter. The steelmaker announced plans this month to buy out Thainox Stainless Pcl, Thailand’s biggest stainless steel producer.

“We’ll continue our efforts to complete our value chain in the steel industry,” Posco President Choi Jong Tae told investors at a briefing today in Seoul. “We’ll go ahead with investments as planned.”

Shares in Posco, Asia’s top steelmaker by market value, gained 0.9 percent to 474,000 won. The stock has fallen 6.1 percent since March 31, compared with a 3.1 percent gain in the key Kospi index. Baoshan Iron & Steel Co., the world’s second- biggest steelmaker, has fallen 17 percent, while ArcelorMittal, the world’s biggest producer, declined 9.3 percent since March 31.

Higher Output

Posco produced 9.28 million metric tons of crude steel in the second quarter, up 11 percent from a year earlier. The company expects to meet its target of producing 37.1 million metric tons of crude steel and post 40 trillion won of sales this year, it said in the statement.

“Second-quarter results may be the best for this year on increased values of inventories,” Kim Kang Oh, an analyst at Hanwha Securities Co. in Seoul, said before the announcement.

Production of cold-rolled steel products will be increased to as much as 83 percent of overall output by 2020 from 51 percent in 2010. Capacity at Thainox Stainless will be increased to 300,000 metric tons a year from 240,000 tons, Suh Young Sea, senior vice president at Posco, told investors today, without giving a timeframe.

The company, including its units, will invest 9.7 trillion won this year, according to the statement. Standalone operating profit fell 17 percent to 1.5 trillion won, while sales rose 27 percent to 10.03 trillion won in the quarter, Posco said.

‘Little Interest’

The company has “little interest” in buying Daewoo Shipbuilding & Marine Engineering Co. and has no plan to move into the shipbuilding industry, Choi said.

Group sales are expected to rise to 66.4 trillion won this year from 47.9 trillion won in 2010, according to Posco’s presentation to investors in Seoul.

Posco paid miners 25 percent more for iron ore and about 47 percent more for coking coal for the quarter, compared with the previous three months. The company plans to boost its own source of raw material to 50 percent of overall requirement by 2020 from 19 percent in 2010, according to the statement.

The company increased steel prices by 160,000 won per metric ton on April 22, an 18 percent gain in hot-rolled steel plates and a 16 percent increase in cold-rolled steel plates, according to a company presentation that day.

--Editors: Indranil Ghosh, Rebecca Keenan

To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net Rebecca Keenan at rkeenan5@bloomberg.net


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