Posco’s parent-company operating margins rose to a three-year high in the latest quarter, evidence that Chief Executive Officer Kwon Oh Joon’s efforts to sharpen the Korean steelmaker’s focus on its core business are gaining traction. The shares followed, climbing the most in almost a year. It’s too soon to count on a turnaround, however.

Much of the improved outlook stems from the slide in commodities. Posco bought iron ore in the six months through June for about 29 percent less than it paid during 2014, according to its first-half numbers, while scrap metal and LNG were both about 25 percent cheaper. Lower costs meant that an 7.9 percent quarterly fall in revenue in the three months to end-September translated into a more modest 5 percent drop in operating profit, maintaining Posco’s Ebit margin above 4 percent:

Don’t get too excited. The same forces driving down the cost of Posco’s raw materials are weighing on prices of its finished products.

Luckily for Kwon, that effect looks to be more muted: Posco’s selling price for cold-rolled steel, a high-quality coiled material and its main product, dipped a more modest 8.9 percent over the first half, to 755,000 Korean won per metric ton. That’s about $667, a premium of more than 20 percent to the average $555 price of cold-rolled steel imported to the U.S. during the period, and 3362 yuan ($541) in China’s domestic market.

For all Kwon’s restructuring and cost-cutting, Posco is selling a core product that’s struggling against a flood of cheap steel being produced by China’s oversupplied industry.

Over the past four months, China’s steel exports alone amounted to about 40 million tons, barely less than Posco’s entire annual production volume, according to data compiled by Bloomberg. It’s not good news that a unit of China’s Sinosteel Corp., a rival producer, appears to have been saved from defaulting on its debt: unprofitable businesses need to shut down for the rest of the industry to recover.

While Posco shareholders show faith that the market is approaching a bottom, there’s little sign yet of a rebound in prices:

Posco’s stock now trades at 11.1 times forecast 2016 earnings, the richest valuation of any Asian steelmaker outside China and Taiwan. Until the broader market starts to recover, it would take nerves of, you know, to bet that it’s hit bottom.

(This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.)

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