Posco, the world’s third-biggest steelmaker by output, reported a 33 per cent drop in first- quarter profit as raw material costs increased and forecast higher earnings this year after boosting steel prices.
Net income fell to 927 billion won ($858 million) in the three months ended March 31 from a revised 1.37 trillion won a year earlier, the Pohang, South Korea-based company said in a regulatory filing.
POSCO underperformed the local benchmark stock index in the past year on concern rising prices of iron ore and coal, the main steel-making materials, may narrow margins. Earnings will likely improve in coming quarters as POSCO raises prices to offset cost gains and demand may increase on rebuilding work in Japan after last month’s earthquake, according to Nomura Holdings Inc and DBS Vickers Securities (Singapore) Pte.
“Demand would be good as the economy recovers,” said Han Sang Soo, a fund manager at Samsung Asset Management Co in Seoul, which oversees about $29 billion in assets. Still, “it is unlikely that profitability will improve much because it would be hard to fully pass on cost gains to customers amid rising raw material prices.”
Shares in POSCO lost 1.2 per cent this year, compared with a 7.2 per cent gain in the local benchmark Kospi index. “The stock is cheap, but could hardly outperform the benchmark,” Han said.
Rival Baoshan Iron & Steel Co, China’s biggest publicly traded steelmaker, jumped 15 percent so far this year, while ArcelorMittal, the world’s biggest, dropped 7.3 per cent. POSCO gained 0.5 per cent to close at 481,000 won in Seoul trading before the results were announced.
Operating profit decreased 36 per cent to 921 billion won in the January-March quarter, while sales rose 31 per cent to 9.11 trillion won, Posco said. The year-ago figures released on Saturday were revised, following its adoption of International Financial Reporting Standards from this year.
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The company was forecast to post 895.8 billion won net income, according to the average of 11 analyst estimates compiled by Bloomberg.
POSCO also raised the prices of products including hot- rolled coils and heavy plates by 160,000 won per metric ton.