Steelmaker Posco Jumps Most Since `14 as Worst May Be Over

  • Wide belief in market that Posco has hit bottom, Kyobo says
  • Mill's results show parent company's margins are improving

Posco advanced the most in almost a year on speculation that the worst is over for South Korea’s biggest steelmaker as margins improve in its main business, signaling efforts to boost performance amid increased competition from China are paying off.

The shares rose 5.9 percent to 190,000 won in Seoul, the largest gain since November 2014. Operating margins at the parent company, excluding affiliates, climbed to 10 percent in the third quarter, the highest in three years, while operating profit was the biggest since 2013, data compiled by Bloomberg showed after Posco reported results on Tuesday. The stock, which closed at the highest since Sept. 16, fell 39 percent in the past year.

“Investors are drawn into buying shares now as there’s a wide belief in the market that Posco has hit the bottom,” Nam Kwang Hoon, a Seoul-based analyst at Kyobo Securities Co., said by phone on Wednesday.

Chief Executive Officer Kwon Oh Joon in July announced plans to quit non-core operations and focus on steel. Posco said it would lower the number of local units to 22 from 42 by 2017 and reduce overseas businesses to 117 from 167. It said this week it would complete the restructuring of 19 affiliates by year-end. The producer has operations from Argentina to Mongolia and earned almost half its revenue from steel in 2014, exchange filings show.

China’s Sales

The company announced Tuesday a net loss of 534.2 billion won ($471 million) in the third quarter at a consolidated level, excluding minority interests, the largest in at least five years. That reflected losses on foreign exchange and mining assets, a lawsuit settlement and a deluge of Chinese steel exports that pushed down global prices.

Chinese shipments have surged to a record as demand contracts for the first time in a generation. Sales soared 27 percent to 83.1 million tons in the first nine months, approaching the 98.1 million tons made in the whole of 2014 by ArcelorMittal, World Steel Association data show.

Analysts have a price target of 225,462 won in 12 months, according to 26 estimates compiled by Bloomberg. About 80 percent of contributors recommend buying the shares.

“The company has made continuous efforts to cut costs and improve quality,” Park Jong Kuk, a Seoul-based analyst at KIWOOM Securities Co., said by phone. “Uncertainties have now been removed, sending a positive signal.”

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