Posco Cuts Sales Forecast as Earnings Miss Estimates

Posco Cuts Sales Forecast Third Time as Earnings Miss Estimates
Men go fishing near a Posco steel mill in Pohang, South Korea. Photographer: SeongJoon Cho/Bloomberg

Posco, Asia’s third-biggest steelmaker by output, cut its 2012 sales forecast for the third time this year after quarterly profit missed analyst estimates as demand waned and prices declined.

Sales on a parent basis may drop to 36.3 trillion won ($32.9 billion) this year, compared with the July estimate of 37.5 trillion won, the Pohang, South Korea-based company said in a regulatory filing today. Parent net income was 744 billion won in the three months ended Sept. 30, less than the 753.6 billion won average of 17 analyst estimates compiled by Bloomberg.

Europe’s debt crisis and China’s economic slowdown have curtailed demand growth for the alloy, squeezing profit margins at steelmakers. Standard & Poor’s Ratings Services yesterday cut Posco’s rating, saying its operating performance this year “will likely be weaker” than previously expected. Earnings this quarter may be less than the third quarter because of an oversupply and weak demand, Posco said today.

“Global demand including in China is really sluggish so it will take a while before the steel industry could recover,” Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $31 billion, said by telephone today. “For now, many investors appear to have a pessimistic outlook.”

Posco fell 2.1 percent to close at 348,500 won in Seoul trading today, the lowest since March 19, 2009, after yesterday’s rating cut by Standard & Poor’s. The stock has fallen 8.3 percent this year, under-performing the 5.5 percent advance in the benchmark Kospi index. The earnings announcement came after the stock market closed.

Missing Estimates

Operating profit fell about 25 percent to 819 billion won in the third quarter, missing the 865.7 billion won average of 19 analyst estimates compiled by Bloomberg. Operating profit margin was 9.2 percent in the quarter, compared with 10.9 percent a year earlier, the company said.

Posco’s average price of plates, used in ships and machinery, declined 17 percent in the quarter from a year earlier, the steepest among its products, Kim Kang Oh, an analyst with Hanwha Investment & Securities Co. estimated in a Sept. 28 report. Benchmark hot-rolled coils dropped 10 percent, according to the report.

Global ship orders dropped 53 percent in the first nine months of this year to 31.1 million deadweight tons, according to Clarkson Plc, the world’s biggest shipbroker. That is the smallest nine-month tally since 1999.

World steel demand may expand 2 percent to 3 percent a year through 2013, Posco said today. Raw material prices may gain in the second-half of next year driven by China, it said.

Weaker Earnings

“The recovery of the steel industry is being delayed because the global economy remains in the doldrums due to fiscal crisis in advanced economies,” Posco Chief Financial Officer Park Ki Hong told investors today. “Fourth-quarter earnings may weaken from the previous quarter since oversupply hasn’t been eased, although we expect that won’t be a sharp drop.”

Fourth-quarter contract prices for iron ore and coal dropped from third-quarter levels, with iron ore set at $117 a ton and hard coking coal at $170 a ton, the company said today.

Crude steel output rose 2 percent to 9.66 million metric tons in the third quarter, while sales increased 2.8 percent to 8.93 million tons, the company said.

The Korean steel company today cut parent-basis capital expenditure for this year to 3.9 trillion won from the previous target of 4.2 trillion won.

Posco is the world’s fourth-biggest steel producer by 2011 output according to rankings on the website of the World Steel Association. It is Asia’s largest producer after Hebei Iron & Steel Group and Baosteel Group Corp.

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