{"id":162408,"date":"2010-01-10T13:28:00","date_gmt":"2010-01-10T18:28:00","guid":{"rendered":"tag:blogger.com,1999:blog-3087194156628161158.post-2924428961602265263"},"modified":"2010-01-10T13:33:32","modified_gmt":"2010-01-10T18:33:32","slug":"businessweek-posco-pursues-30-billion-expansion-to-catch-china%e2%80%99s-baosteel","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/162408","title":{"rendered":"BUSINESSWEEK: Posco Pursues $30 Billion Expansion to Catch China\u2019s Baosteel"},"content":{"rendered":"

January 10, 2010, 10:50 AM EST<\/span><\/p>\n

By Sungwoo Park<\/p>\n

Jan. 11 (Bloomberg) — Posco, Asia\u2019s most profitable steelmaker, is set to report the highest net income in six quarters as prices recover. Further growth depends on $30 billion in overseas expansion.<\/p>\n

Chief Executive Officer Chung Joon Yang last week added plans for a $7 billion plant in India\u2019s Karnataka state to a $12 billion project in Orissa in the south Asian nation and a $6 billion Indonesian plant. Together with an investment in Vietnam, the South Korea-based company may leap from fifth-place to regain its spot as Asia\u2019s largest steelmaker.<\/p>\n

Chung, 61, who took the helm in February, wants to regain ground lost to China\u2019s Baosteel Group Corp. Three years of delay at the Orissa project and slowing domestic growth weighed on the stock, with Posco lagging behind ArcelorMittal, the world\u2019s largest mill.<\/p>\n

\u201cPosco has to show that it is a growing company,\u201d said Kim Do Joon, a Seoul-based fund manager who helps manage $1.5 billion of assets including Posco shares at Hanwha Investment Trust Management Co. \u201cThey cannot expect a growth momentum from the local market.\u201d<\/p>\n

Shares of Posco, which counts Warren Buffett\u2019s Berkshire Hathaway Inc. as a stakeholder, gained 63 percent in Seoul trading last year. ArcelorMittal jumped 89 percent. China\u2019s Baoshan Iron & Steel Co. and local rival Hyundai Steel Co. doubled.<\/p>\n

Profit at the Pohang-based company may almost double to 1.37 trillion won ($1.2 billion) in the three months ended Dec. 31, according to the median estimate of 23 analysts compiled by Bloomberg. It may be the largest quarterly gain in three years. Chung will announce results at 4 p.m. Seoul time on Jan. 14.<\/p>\n

Fresher Look<\/p>\n

\u201cI\u2019ll try to boost the future competitiveness of the company through investments and M&As,\u201d Chung, a 35-year Posco veteran, said in February when he took over the job. He declined to be interviewed for this story on his first full-year earnings result as CEO.<\/p>\n

In the past year, Chung has acquired Asia Stainless Corp. in Vietnam, TaihanST Corp. in Korea, and is in talks to buy Thailand\u2019s Thainox Stainless Pcl. He\u2019s approved U.S. and Chinese expansion and is studying a bid for Daewoo International Corp., which has a Myanmar gas project worth at least $4 billion.<\/p>\n

\u201cScale is pivotal for competitiveness,\u201d Choi Doo Jin, a Posco spokesman, said in an interview. \u201cWe\u2019re going into India and Indonesia with a main focus on resources and into Vietnam on markets.\u201d<\/p>\n

Three-Prong Expansions<\/p>\n

Those expansions will add 28 million metric tons of capacity, or 85 percent of Posco\u2019s 33.1 million tons crude steel output in 2008. The Orissa and Indonesian projects alone may add 60,000 won to Posco\u2019s stock price, said Kim Gyung Jung, an analyst with Samsung Securities Co.<\/p>\n

Chung, who studied at the nation\u2019s top Seoul National University, was head of Posco Engineering & Construction Co. when he was picked to be CEO. The metal engineer, who snowboards and plays the saxophone, has spent most of his career in production after joining Posco in 1975.<\/p>\n

Like Buffett, Chung is seeking to take advantage of the crisis to expand. Posco is the only steelmaker among the 10 biggest that didn\u2019t report a loss in any quarter in the 12 months ended Sept. 30, according to data compiled by Bloomberg.<\/p>\n

\u201cYou have to invest when others don\u2019t,\u201d Samsung\u2019s Kim said. \u201cYou can avoid competition and pre-occupy markets, leaving little room for latecomers.\u201d<\/p>\n

\u2018Aggressive Investments\u2019<\/p>\n

Steel demand may grow 9.2 percent this year as the global economy rebounds from the recession, the World Steel Association forecast in October.<\/p>\n

Posco will be able to maintain its risk profile during the course of \u201caggressive investments,\u201d Standard & Poor\u2019s said Dec. 14. It has 8 trillion won ($7 billion) in cash, near-cash items, short-term investments and receivables as of Sept. 30.<\/p>\n

Posco is pressing ahead in Orissa after winning government approval to acquire 88 percent of the land needed, spokeswoman Choi Youn Joung said Jan. 4. The project has been delayed since 2007 when construction was to start. It still needs approval from remaining villagers and a permit to mine iron ore, required to feed its steel plant. The delays won\u2019t affect plans for the 6-million-ton plant in Karnataka that were revealed last week.<\/p>\n

Chung also has to progress Posco\u2019s $5 billion investment in Vietnam, where the government in 2008 told the company to seek a new location for its plant.<\/p>\n

Right Thing<\/p>\n

\u201cTargeting India, Vietnam and Indonesia is the right thing to do to prepare for the future as demand outlook for the emerging markets is quite good,\u201d said Im Jeong Jae, a Seoul- based fund manager at Shinhan BNP Paribas Asset Management Co., which manages about $26 billion in assets including Posco shares.<\/p>\n

Southeast Asia is the world\u2019s biggest net importing steel market with demand expected to grow 9.2 percent a year, according to Posco\u2019s Research Institute.<\/p>\n

Posco dropped to sixth in global steelmaking in 2008, overtaken by Baosteel and Hebei Iron & Steel Group. China plans to create one or two producers the size of ArcelorMittal. The world\u2019s largest steelmaker had 101.6 million tons of output in 2008, three times Posco\u2019s production.<\/p>\n

\u201cBigger Chinese rivals may eventually threaten Posco\u2019s edge in high-end products such as automotive steel,\u201d said Chung Ji Yun, an analyst with HI Investment & Securities Co. in Seoul.<\/p>\n

–With assistance from Cesilia Han and Shinhye Kang in Seoul. Editors: Tan Hwee Ann, Andrew Hobbs<\/p>\n

-0- Jan\/10\/2010 15:00 GMT<\/p>\n

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