Posco Stainless Steel Production to Reach Record on Emerging Market Demand

Posco (005490), the world’s biggest maker of stainless steel, will report record production this year, saying it expects to maintain that pace in 2012 supported by demand from emerging markets.

Output of the alloy used in cars and home appliances may reach about 3.16 million metric tons this year, up from about 2.9 million tons in 2010, Suh Young Sea, senior vice president at the Pohang, South Korea-based company, said in an interview in Seoul.

Posco, the world’s third-biggest steelmaker, said last month it will continue expanding in emerging markets, including China and India. Stainless-steel producers in Europe face overcapacity, higher raw-material costs and falling prices.

“We are probably the only stainless-steel maker that’s making profit and running at full capacity under the current situation,” Suh said in the interview Nov. 25. “We will try to maintain current output levels next year as well. Emerging markets will still likely show some growth, and we are planning to increase our share in those markets.”

Global stainless steel output may rise 6.5 percent to 33 million tons this year, Suh said. That compares with U.K.-based industry consultant MEPS (International) Ltd.’s Nov. 2 forecast of 32.5 million tons. Demand in China and India, the world’s most populous nations, is increasing with disposable income.

Europe’s debt crisis remains a “swing factor” in terms of global demand, Suh said. Posco kept domestic stainless steel prices steady for December for the third straight month.

Posco rose 3.1 percent, the biggest gain since Nov. 14, to 364,000 won in Seoul trading. Nickel, a key raw material for stainless steel, climbed 1.8 percent to $17,254 a ton in London. Stainless-steel makers are the world’s top users of the metal.

Target Cut

“It’s very difficult to make any forecasts for next year because there are still uncertainties about the global economy,” Suh said. “However, we’d like to remain optimistic, pinning hopes on emerging markets such as China, India and Southeast Asia.”

Posco posted a 78 percent decline in third-quarter profit because of foreign-currency losses and weaker demand. The company cut its total planned spending for this year to 6 trillion won from 7.3 trillion won.

Stainless steel output in China, the world’s biggest producer, rose 6 percent to 3.37 million tons in the first nine months from a year earlier, the China Iron and Steel Association said Oct. 21. China’s production may climb 13 percent this year and 11 percent next year, MEPS said.

In terms of raw-material sourcing, Posco is looking at “multiple projects” in Indonesia, including the Sulawesi region, to secure supply of nickel, a key ingredient, Suh said, declining to elaborate. The company and its Chinese venture, Zhangjiagang Pohang Stainless Steel Co., will together seek to develop a nickel mine in Indonesia, Posco said in June.

Outperformance

“Posco is boosting its self-sufficiency in raw-material sourcing and also expanding sales bases globally, improving its profitability structure,” said Kim Gyung Jung, a steel and metals analyst at Eugene Investment & Securities Co. in Seoul. “Such an expansion strategy will benefit the company in the longer term as it is a major player with a market share of about 10 percent.”

The stock have fallen 25 percent this year, compared with a 38 percent decline in the 76-member Bloomberg World Iron and Steel Index.

Posco is the world’s biggest maker of stainless steel based on 2010 output, followed by China’s Taiyuan Iron & Steel Group Co., according to the Korean mill. Posco and its units have the capacity to produce more than 3 million tons of stainless steel a year and the company is building plants and marketing bases in China, Vietnam and Turkey.

The company bought Thainox Stainless Pcl, Thailand’s largest maker of rust-proof steel in October. Thainox has a capacity of 200,000 tons a year.

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net; Rebecca Keenan at rkeenan5@bloomberg.net.

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