POSCO meets forecast but warns of slow demand, high costs

Published July 22, 2011

| Reuters

SEOUL (Reuters) - POSCO <005490.KS>, the world's No.3 steelmaker, met market expectations with a 17 percent fall in quarterly operating profit on Friday, hurt by firm raw material costs and cheaper products from Japanese rivals after the March 11 earthquake.

The South Korean steelmaker, which kicks off the earnings season for Asian steelmakers, warned of a difficult second half, as it faces weakening steel demand growth and persistently high raw material prices.

Steelmakers' earnings came under pressure as oversupply was exacerbated by a flood of imports from Japan following the earthquake and record production by China, even as they raised prices to reflect mounting cost increases.

POSCO raised its domestic product prices for the first time in nine months in April, which helped sales rise by 27 percent in the second quarter, but profit dipped as it failed to fully pass on cost rises.

The company, which trails ArcelorMittal <ISPA.AS> and Baosteel <600019.SS>, said April-June operating profit was 1.5 trillion won ($1.4 billion), broadly in line with the consensus forecast of 1.46 trillion won by Thomson Reuters I/B/E/S.

The profit compares with 1.8 trillion won a year ago and 921 billion won in the previous quarter, POSCO said.

Shares in POSCO, which counts billionaire investor Warren Buffett's Berkshire Hathaway <BRKa.N> <BRKb.N> as a major shareholder, have underperformed the wider market this year.

(Reporting by Hyunjoo Jin; Editing by Jonathan Hopfner)

URL

http://www.foxbusiness.com/industries/2011/07/22/posco-meets-forecast-but-warns-slow-demand-high-costs/