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Posco Forecasts Higher Sales This Year After 2013 Profit Slumps

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Posco Steel Mill
The Posco steel mill stands in Pohang, South Korea. Photographer: SeongJoon Cho/Bloomberg

Jan. 29 (Bloomberg) -- Posco, South Korea’s biggest steelmaker, forecast a global economic revival will help boost sales this year after profit slumped in 2013 because of waning demand from builders of ships, cars and houses.

Sales may reach 65.3 trillion won ($60 billion) in 2014, compared with 61.9 trillion won a year earlier, Pohang, South Korea-based Posco said yesterday in a statement. Net income, excluding minority interests, fell 44 percent to 1.38 trillion won in the 12 months ended Dec. 31, 2013, missing the 1.74 trillion won average of 20 estimates compiled by Bloomberg.

Slowing economic growth in China, the world’s biggest steel consumer, eroded demand and cut prices of the alloy, squeezing profits at steelmakers globally. Posco forecast yesterday world steel consumption will rise about 3 percent to 4 percent this year and said it plans to increase production.

“The global economy is expected to recover gradually this year led by developed countries,” Chief Financial Officer Park Ki Hong said in a briefing after the announcement. “However, we are still facing challenges internally and externally. Posco will try to secure profitability and enhance competitiveness.”

The stock fell 0.5 percent to 297,500 won in Seoul, while the local benchmark Kospi index gained 0.3 percent. The announcement came after the stock market closed. Posco lost 8.9 percent this month, while Baoshan Iron & Steel Co., China’s largest publicly traded steelmaker, dropped 7.8 percent and Nippon Steel & Sumitomo Metal Corp. declined 13 percent.

Operating Profit

Operating profit decreased 18 percent to 3 trillion won last year, missing the 3.09 trillion won average of 18 estimates compiled by Bloomberg. Operating margin slipped to 4.8 percent last year from 5.7 percent a year earlier, Posco said.

JSW Steel Ltd., India’s third-largest producer of the alloy, reported yesterday third-quarter profit that missed analyst estimates. Net income was 4.66 billion rupees for the period ended Dec. 31, missing the 5.82 median of 24 analyst estimates compiled by Bloomberg.

The world economy may expand 3.7 percent this year, compared with 3 percent last year, the International Monetary Fund forecast last week. Steel prices in China, a regional benchmark, may recover starting this quarter, Posco said yesterday. The South Korean mill’s average prices dropped 12 percent last year to 776,000 won a metric ton amid weak demand, it said.

The company plans to produce 37.7 million tons of crude steel this year, compared with 36.4 million tons last year, it said yesterday. Posco forecast iron ore prices will average about $125 a ton to $130 a ton this year and hard coking coal prices $145 a ton to $150 a ton.

Posco, Asia’s fourth-largest steelmaker, reduced its group-based capital expenditure for this year to 6.5 trillion won from 8.8 trillion won in 2013, it said.

“Profit for this year is not likely to improve significantly, with an overcapacity issue still remaining in China and increased competition from Hyundai Steel Co.,” said Lee Jin Woo, a Seoul-based money manager at KTB Asset Management Co., which oversees about $6.6 billion.

Hyundai Steel is the second-biggest steel producer in South Korea.

To contact the reporters on this story: Heesu Lee in Seoul at hlee425@bloomberg.net; Sungwoo Park in Seoul at spark47@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net

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