POSCO predicts tough fourth quarter after Q3 meets view

Fri Oct 21, 2011 5:00am EDT
 
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By Hyunjoo Jin

SEOUL (Reuters) - POSCO (005490.KS: Quote), the world's third-biggest steelmaker and backed by billionaire investor Warren Buffett, cut its 2011 investment plan and painted a dim outlook after posting a 6 percent rise in quarterly profit that met market expectations.

The outlook from POSCO, which kicks off the earnings reporting season for major Asian steelmakers such as Baosteel (600019.SS: Quote) and Nippon Steel (5401.T: Quote), bodes ill for the sector.

Although prices of raw materials such as iron ore and coking coal are softening, weakness in developed economies and tight credit conditions in China are expected to weigh on steel prices.

"Unless the global economy gets better and sparks demand, POSCO's steel business will stagger for at least two to three years, pressured by low-end Chinese products, global oversupply and its domestic rival Hyundai Steel growing fast," said Kim Se-hoon, a fund manager at Assetplus Investment Management, which owns POSCO shares.

The company, which trails ArcelorMittal ISPA.AS and Baosteel (600019.SS: Quote), said on Friday its July-September operating profit was 1.09 trillion won ($951.8 million), versus an average 1.15 trillion won forecast from analysts, according to Thomson Reuters I/B/E/S.

The profit edged up from 1.03 trillion won a year ago, thanks to higher sales volume and prices, but fell from 1.5 trillion won in the previous quarter because of higher raw material costs, POSCO said.

BLEAK Q4 EARNINGS

POSCO Chief Financial Officer Choi Jong-tae said the steelmaker's fourth-quarter operating profit may decrease to below 1 trillion won and that steel prices are expected to fall until the first half of next year.   Continued...