16 Januari 2009
POSCO warns 2009 steel sales will fall, Q4 disappoints

South Korea's POSCO, the world's No.4 steelmaker, warned on Thursday slumping demand would hit its steel output and sales this year, after reporting a sharply lower-than-expected quarterly profit.

Before the results announcement, Chief Executive Lee Ku-taek resigned to make way for a new leader, ending speculation that he would step down as the company struggles against the world's worst economic downturn in decades. "The outlook is bleak due to the recession and mounting risks such as China's slowdown," said Hwang Chang-joong, an analyst at Woori Investment & Securities. "The first quarter will mark a peak in terms of difficulties."

Faltering demand for everything from autos to home appliances is seen hitting earnings at steel majors this year, in a sharp reversal to the sector's record profits logged last year.

POSCO, which cut production for the first time ever in December-January, has predicted that this month will see its worst monthly performance amid weak demand and volatile markets, but said it should remain profitable.

The company, which said this week it may have to extend output cuts through the current quarter, now forecasts 2009 sales will fall buy up to 12 percent to between 27 trillion won and 30 trillion won, with steel output seen dropping by as much as 12 percent to between 29 million tonnes and 32 million tonnes.

The steelmaker, which ranks behind ArcelorMittal, Nippon Steel and JFE, must also contend with higher imported raw material costs due to a weaker won currency.

"The business environment has become very unpredictable due to the volatile won currency, raw material prices and a weak recovery in steel consumption... The first quarter will be the worst in terms of earnings and profits will fall sharply," outgoing chief executive Lee said.

"But we'll take advantage of this crisis as an opportunity by actively investing and seeking alliances with and acquisitions of raw material firms and steel makers," said Lee.

POSCO said it would increase investment this year by as much as 53 percent to 7.5 trillion won, including 1.5 trillion won in investment in overseas resources and steel firms.


POSCO, however, said it had no plans to cut domestic steel prices for the time being as the firm has yet to negotiate raw material purchase deals for a new fiscal year starting in April.

"Steelmakers want to lower iron ore prices dramatically but there'll be quite a sizeable (price) gap with suppliers," Lee said.

Operating profit this year is seen falling by a quarter to below 5 trillion won ($3.7 billion), according to Reuters Estimates, as core customers, such as top automaker Hyundai Motor (005380.KS), cut output sharply in the face of weak demand and inventory build-up.

POSCO's October-December net profit came in at 721 billion won ($527 million), sharply below a forecast for 1.15 trillion won from 10 analysts polled by Reuters Estimates.

The profit rose 1.1 percent from 713 billion a year ago but dropped 41 percent from the July-September period.

The results undershot expectations because sales faltered in December as a result of a big slump in demand and as a weaker won boosted foreign-currency debts.

The won, which dropped 26 percent last year, skidded another 8 percent in January.

Shares in POSCO, South Korea's second-largest listed company, dropped 14 percent in the fourth quarter, outperforming a 22 percent drop in the broader market .

The stock ended down 5.3 percent on Thursday before the results announcement as the broader market slumped 6 percent.

Japan's two leading steelmakers announce earnings later this month.

(Source: SEAISI Website)

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