Posco Full-Year Profit Declines as Global Slowdown Erodes Steel Demand

Posco (005490), the world’s third-largest steelmaker, reported a 12 percent decline in full-year group profit as the economic slowdown eroded demand and prices for the alloy used in cars, ships and construction.

Net income fell to 3.7 trillion won ($3.3 billion) in the year ended Dec. 31 from 4.19 trillion won a tear earlier, according to a regulatory filing today. The company forecast sales in 2012 will probably be in the range of 37.7 trillion won ($33.7 billion) to 41.2 trillion won on a parent basis, compared with 39.17 trillion won last year. Group sales will total 70.6 trillion won to 74.3 trillion won, compared with 68.94 trillion won, it said.

Steel demand worldwide is being tempered by cooling economies in China and Europe, where orders for steel products for houses, cars and machinery are stagnating and are keeping the alloy’s prices and overseas shipments muted. Posco joins China’s Baoshan Iron & Steel Co. and Nippon Steel Corp. of Japan in forecasting weaker demand.

“The key focus is whether steel prices will recover,” Bang Minjin, an analyst with HI Investment & Securities Co., said before the announcement. “Macro-economic conditions are pretty bad now. Still, we expect Posco’s profit momentum to improve from the second quarter because raw-material costs may fall.”

Posco fell 0.4 percent to close at 417,000 won in Seoul trading today. The announcement came after the stock market closed. The shares have lost 9.5 percent in the past year, compared with a 4.8 percent drop in the benchmark Kospi (KOSPI) index.

Falling Demand

Global use of steel will rise 4.5 percent this year, less than the 5.4 percent forecast in October by the World Steel Association, according to the median estimate of 14 steelmakers, analysts and traders surveyed by Bloomberg. Growth may be as low as 1.2 percent, according to Bloomberg Industries analysts.

Posco plans to spend 4.5 trillion won to 5.1 trillion won this year, it said. The company’s average selling prices for its benchmark hot-rolled coils probably dropped by about 5 percent in the fourth quarter of 2011 from the previous quarter, Chris Kim, an analyst with Samsung Securities Co., wrote in a Jan. 11 report. South Korea’s economy grew the least in two years in the fourth quarter.

Baoshan, Nippon

Baoshan, China’s largest publicly traded mill, said Jan. 13 that its unaudited 2011 full-year net income fell 43 percent. Nippon Steel (5401), Japan’s largest steelmaker, last week reported its first loss in three quarters and cut its full-year profit target to zero, while JFE Holdings Inc. forecast its first annual loss. Angang Steel Co., the biggest Hong Kong-traded steelmaker, swung to a loss last year.

Posco’s operating profit may fall in the current quarter and then recover to more than 1 trillion won in the second quarter helped by a likely increase in prices and lower costs of iron ore and coal, Lee Jong Hyoung, an analyst with Meritz Securities Co., wrote in a Jan. 18 report. Input costs may drop by about 10 percent in the first quarter and another 10 percent in the second quarter, said Jeon Seung Hun, an analyst with Daewoo Securities Co.

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

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

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