January 14, 2010, 02:14 AM EST
By Sungwoo Park
SPONSOR
Jan. 14 (Bloomberg) — Posco, Asia’s most profitable steelmaker, posted the highest net income in six quarters and said capital expenditure will soar to a record this year as demand rebounds with the global economic recovery.
Net income advanced to 1.28 trillion won ($1.1 billion) in the three months ended Dec. 31, from 721.4 billion won a year earlier, according to calculations derived from full-year results released today by the Pohang, South Korea-based company. Spending for 2010 will reach 9.3 trillion won, and sales will surge 9.3 percent, it said.
The global steel market has bottomed and will grow by 9.2 percent in 2010 as demand rebounds in the U.S., Europe and Japan, the World Steel Association said Oct 12. Posco is planning $30 billion of overseas expansion in India, Indonesia and Vietnam to regain its spot as Asia’s largest steelmaker.
“Posco was able to recover faster than anybody in the market,” the company said in the statement. “We weathered the crisis by cutting output by only 20 percent in the first half, while global rivals had to cut by more than 40 percent.”
Shares of Posco, which counts Warren Buffett’s Berkshire Hathaway Inc. as a stakeholder, fell 0.7 percent to close at 592,000 won in Seoul trading. They rose 63 percent last year compared with an 89 percent gain in ArcelorMittal, the world’s largest steelmaker.
Fourth-quarter operating profit was 1.59 trillion won, the company said.
Posco will raise crude steel output by 16.6 percent to 34.4 million metric tons this year, as sales may advance to 29.5 trillion won, it said. It plans to cut 1.15 trillion won of costs.
‘Recession Defying’
“Posco will probably continue to report solid, recession- defying earnings through the second quarter of this year,” Chung Ji Yun, an analyst with HI Investment & Securities Co., wrote in a Jan. 11 report. “Growing chances that the company will raise local steel prices are behind the outlook.”
Posco is the only steelmaker among the 10 biggest globally that didn’t report a loss in any quarter in the 12 months ended Sept. 30, according to data compiled by Bloomberg.
“The market has recovered and raw material costs declined in the second half,” Posco said.
Fourth-quarter operating profit increased 14 percent to 1.59 trillion won from a year earlier, while sales dropped 12 percent to 7.29 trillion won, the Korean steelmaker said today.
‘Aggressive Management’
Posco will pursue “aggressive management to seize opportunities ahead of others in the post-crisis era,” Posco Chief Executive Officer Chung Joon Yang said in the statement.
The company intends to build a $7 billion plant in India’s Karnataka state, according to the state government this month. This will add to the $12 billion steel plant and iron ore mining project in Orissa state. Posco has also agreed to invest $5 billion in Vietnam, and is in a $6 billion Indonesian venture.
The Korean mill may post a record operating profit this year as it is likely to raise steel prices in tandem with increasing global rates, Kyobo Securities Co. said Jan. 11. Domestic prices of Posco’s hot-rolled coils should advance by 20 percent in 2010, Seoul-based Cindy Park, an analyst with Nomura International Ltd., wrote in a Dec. 10 report.
Hot-rolled sheet prices in China, the largest consumer of steel, have gained 15 percent since the end of September as the nation’s $586 billion stimulus spending boosted demand from builders, automakers and manufacturers of appliances.
Baoshan Iron & Steel Co., China’s largest steelmaker, raised benchmark steel prices by 8 percent for January delivery last month, the first increase since September.
Car Sales
South Korean carmakers including Hyundai Motor Co., the nation’s biggest, raised production by 45 percent in December from a year ago, according to data provided by the Korea Automobile Manufacturers Association on Jan. 7.
Posco, which derived about 70 percent of sales in South Korea in 2008, slashed local prices of hot-rolled coils by 20 percent in May, the first price cut since January 2006. The company sells steel to carmakers including Hyundai Motor.
Steelmakers will have to contend with the rising costs of iron ore and coking coal this year. Iron ore prices plunged 33 percent and coal almost 60 percent in 2009 in the recession.
Iron ore contract price may jump 40 percent to 50 percent in 2010, Nomura Holdings Inc. said Jan. 11.
–Editors: Tan Hwee Ann, Richard Dobson.
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