POSCO posts tepid profit recovery; weak auto demand weighs

 

South Korean steelmaker POSCO, backed by billionaire investor Warren Buffett, posted only a small profit recovery from January to March, capped by the weak global economy and demand that depressed prices, especially for automotive steel.

 

Asia's steel sector is in a prolonged downturn as China's economy is losing momentum because of the euro zone's recession and a fragile U.S. economy, squeezing demand and prices for the alloy used in the automobile, shipbuilding, construction and home appliance sectors.

 

The outlook remains dim this year as a planned capacity addition by POSCO and smaller rival Hyundai Steel in South Korea may exacerbate oversupply even as demand from South Korean automakers is under pressure from the weaker yen that could give an advantage to Japanese rivals.

 

"We expect the global steel demand to recover slightly from the second quarter," the steelmaker said in a statement.

 

POSCO said on Thursday that its operating profit rose 23% to 581 billion won on a parent basis in the first quarter from a year earlier, in line with a consensus forecast of 578 billion won from Thomson Reuters I/B/E/S.

 

Its sales fell 19% to 7.7 trillion won from a year earlier. Its average selling price for carbon steel slumped 16% to 782,000 won per tonne in the first quarter from a year earlier.

 

POSCO, which supplies steel to the likes of Hyundai Motor and the South Korean unit of General Motors , cut domestic prices of automotive steel by 50,000 Korean won per tonne in the first quarter because of a weak auto market, Nomura said in a recent report.

 

Prior to the earnings announcement, shares in POSCO, in which Buffett's Berkshire Hathaway owns around 5%, ended up 0.9% in line with the market's 0.8% gain.

 

POSCO, which has outperformed its Japanese rivals for several quarters, is now set to lag them as Japanese rivals benefit from a weaker yen.

 

Japanese steel producer JFE Holdings Inc  returned to a recurring profit from a loss in the January to March quarter, and analysts polled by Thomson Reuters I/B/E/S gave an average projection of 191.2 billion yen in recurring profit this year. China's Baoshan Iron & Steel, the country's biggest listed steelmaker, is set to report is earnings later Thursday.

 

Shanghai rebar futures dropped to the lowest in more than seven months on Tuesday after data showed China's manufacturing sector growth slowed in April, suggesting the world's No.2 economy still faces headwinds after its gross domestic product grew by a less than forecast 7.7% in January-March.

 

Despite lackluster demand, POSCO plans to reportedly expand one of its blast furnaces in the southwestern city of Gwangyang after initial delay due to weak demand, and Hyundai Steel, an affiliate of Hyundai Motor, will also start a new blast furnace later this year.