Posco Forecasts Lower Sales This Year After Profit Drops

Posco, Asia’s third-biggest steelmaker by output, forecast sales may fall this year after reporting worse-than-estimated fourth-quarter profit as waning orders from carmakers and shipbuilders lowered prices.

Sales on a parent basis may slip to 32 trillion won ($29 billion) in 2013 from 35.7 trillion won in 2012, the Pohang, South Korea-based company said in a regulatory filing today. Net income was 513 billion won in the three months ended Dec. 31, compared with 767 billion won a year earlier, missing the 592.6 billion won average of 18 analyst estimates compiled by Bloomberg.

China’s economic slowdown and Europe’s fiscal crisis have reduced demand for steel used in houses, cars and ships, squeezing profits at global steelmakers. Posco (005490) today said an “unprecedented slump” in the worldwide steel market cut prices and hurt profits last year. The company also forecast its crude steel output may decline this year.

“Steel companies including Posco will have to accept the new normal -- lower demand, lower price and narrower margin,” said Kim Hag Ju, chief investment officer at Woori Asset Management Co., which oversees $19 billion in assets. “We won’t see the steel boom era that we’ve watched in the past decade spurred by China’s growth.”

Posco fell 0.1 percent to 355,500 won at the close in Seoul today, while the local benchmark Kospi index gained 0.8 percent. The stock has climbed 1.9 percent this year, compared with a 2.1 percent drop in Kospi. (KOSPI) The earnings announcement came after the stock market closed.

’Severe Competition’

“We expect global competition to be the most severe this year,” Posco Chairman Chung Joon Yang told investors today. “While people expect a gradual recovery in the global economy, uncertainties are still there. We will try to turn this crisis into an opportunity by securing profitability as well as growth.”

Global steel demand may grow 3 percent this year, with consumption in China, the world’s top consumer and producer of steel, gaining at the same pace, according to a company presentation at a press conference today. Demand in Korea, where it sold more than half its products last year, may remain largely unchanged.

Prices Posco charged for steel fell by 103,000 won per metric ton to 883,000 won in 2012, compared with the previous period. Operating margin slipped to 7.8 percent last year from 11 percent in 2011 and 15 percent in 2010, it said in the presentation.

Better Future

Full-year net income fell 22 percent to 2.5 trillion won, missing the 2.54 trillion won average of of 20 analyst estimates compiled by Bloomberg. Operating profit fell 36 percent to 2.79 trillion won.

Chung was optimistic of future performance saying first- quarter earnings may improve from the preceding period on lower raw-material costs.

Posco forecasts spot iron ore prices will average $135 a ton this year and hard coking coal prices $185 a ton.

The Korean company forecast 2013 crude steel output at 37 million tons, compared with 37.99 million tons last year. Sales may fall to 34 million tons this year from 35 million tons last year, it said in the presentation.

Posco’s capital expenditure for this year will increase to 4 trillion won from 3.6 trillion won last year because of capacity expansions. The spending plan won’t affect its finances, said Chief Financial Officer Park Ki Hong.

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

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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