-- Posco posts 18% slump in third-quarter operating profit
-- Company expects fourth-quarter earnings to be worse than
third quarter
-- Earnings hit by low demand and oversupply
-- Posco mulls buying Arrium, ThyssenKrupp's U.S. steel mill
assets, U.S. shale gas assets
(Adds company cutting sales target in 5th paragraph.)
By Kyong-Ae Choi
SEOUL--Steelmaker Posco (005490.SE) on Tuesday posted an 18%
slump in third quarter operating profit and said it expects a
further deterioration in earnings for the fourth quarter but
nevertheless was looking at some high-profile acquisitions.
"The fourth quarter earnings are likely to be worse than the
third quarter's as low demand and overcapacity in countries
including China will weigh on steelmakers' margins further," Posco
Chief Financial Officer Park Ki-hong said in a briefing on the
quarterly results.
The steelmaking industry's outlook is shrouded with uncertainty,
with demand from China moderating and economic growth faltering in
the U.S. and Europe. Analysts said that average selling prices of
steel products will likely continue to fall due to sluggish demand
from major clients in the fourth quarter.
Operating profit fell 18% to 1.062 trillion Korean won ($963
million) in the three months ended Sept. 30 from KRW1.288 trillion
a year earlier.
Sales were down 7.2% at KRW15.739 trillion from KRW16.953
trillion. Posco also cut its 2012 consolidated sales target for the
second time this year, to KRW67.2 trillion. In April, it cut the
target to KRW70.4 trillion from KRW70.6 trillion.
But helped by increased sales of high-end products such as
automotive and electric steel and currency gains, Posco's
consolidated net profit for the September quarter jumped to KRW723
billion from KRW229 billion a year earlier, when it was hit by a
hefty currency loss.
The company will continue to boost sales of value-added products
and cut costs in the current quarter to offset falling margins in
low-end products, said the CFO.
"We expect demand from car makers and shipbuilders to improve a
bit in the fourth quarter but overall demand to remain weak through
2013," said Mr. Park.
Standard & Poor's on Monday cut its rating on Posco, citing
a likely fall in steel demand, sending shares of the steelmaker
2.1% lower to close at KRW348,500 Tuesday. The broader market ended
down 0.8%.
To weather the current challenging environment, the Pohang-based
company said it would cut its consolidated spending this year by
5.6% to KRW8.4 trillion. It has also achieved 90% of its
cost-reduction target of KRW1.1 trillion for the year.
"We will run a tight budget this year but won't cut down on
overseas investments regarding raw materials (such as iron ore and
coal), in particular," said the CFO.
The company is considering buying Australian mining firm Arrium
Ltd. (ARI.AU) as part of a consortium and ThyssenKrupp AG's (TYEKY)
U.S. steel mill assets because of its facilities, he said without
elaborating.
The CFO also said Posco would keep an eye on U.S. shale gas
assets because the new energy resource may replace coal, in a big
change to the steel industry.
With the won forecast to rise further next year, prolonged
strength in the currency may weigh on Posco's profits as the
company earns 40% of its sales overseas, said Woori Investment
& Securities analyst Will Byun.
However, the won's appreciation helped drive down Posco's
dollar-denominated debts in the July-September period. The dollar
fell to KRW1,118.60 at end-September from KRW1,153.80 at end-June.
Posco inked KRW256 billion in translation gains for the three
months.
In the year-ago period, sharp depreciation of the won left the
company with currency translation losses of KRW675 billion.
Steel production rose 2.0% year on year to 9.66 million tons in
the third quarter and sales were up 2.7% at 8.927 million tons.
Write to Kyong-Ae Choi at kyong-ae.choi@dowjones.com
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