Posco Quarterly Profit Misses Estimates on Waning Steel Demand

Posco (005490), Asia’s third-biggest steelmaker by output, reported a worse-than-estimated 29 percent decline in first-quarter profit as prices fell on waning demand from carmakers and shipbuilders.

Net income for the parent company was 383.4 billion won ($345 million) in the three months ended March 31, Pohang, South Korea-based Posco said today in a regulatory filing. That compares with 538.6 billion won a year earlier, according to data on the Bloomberg, and the 505.5 billion won average of 15 analyst estimates compiled by Bloomberg. The company didn’t provide year-ago numbers.

Posco today cut its group sales forecast for this year by 3 percent to 64 trillion won, while predicting global steel demand may gradually recover from the second quarter. The company and its global peers are coping with declining profits as China’s economic slowdown and the European debt crisis reduces demand for the alloy used in cars, ships and buildings.

“We hardly see any catalyst to boost demand this year,” Park Byung Chil, a steel analyst with Seoul-based IBK Securities Co., said before the profit announcement. “On the supply side, there won’t be much improvement in this region, with China still pumping up output. While Posco will try to increase prices to reflect cost gains, it won’t be easy.”

Posco has fallen 7.6 percent in Seoul trading this year, underperforming a 2.3 percent decline in the local benchmark Kospi index. Baoshan Iron & Steel Co., China’s largest publicly traded steelmaker, has lost 2 percent during the same period, while Nippon Steel & Sumitomo Metal Corp. (5401) has gained 24 percent.

Operating profit was 581.4 billion won, compared with the 580.7 billion won average of 18 analyst estimates compiled by Bloomberg. Sales were 7.68 trillion won, Posco said in a separate statement.

The average price for Posco’s products probably fell to 832,000 won per metric ton in the first quarter, compared with 1.03 million won a year earlier and 849,000 won in the fourth quarter of last year, Kwon Hae Soon, an analyst at Mirae Asset Securities Co., said in an April 17 report.

China’s hot-rolled coils, a regional benchmark product, has fallen about 6 percent to 3,727 yuan a ton this year. China is the world’s biggest consumer and producer of steel.

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

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net

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