The South Korean company on Tuesday said its October-December operating profit was 379 billion won on a parent basis that does not reflect earnings of affiliates, below an average forecast of 490 billion won in a Reuters' poll of 25 analysts. This compared with an operating profit of 692 billion won a year earlier.
Fourth-quarter sales fell 20 percent to 8.07 trillion won, compared with a consensus forecast of 8.35 trillion won.
Steelmakers are struggling with a combination of a chronic oversupply and a tepid demand recovery in China, the world's top consumer of the alloy used in the construction, shipbuilding, automobile and home appliance sectors.
China's economy grew at its slowest pace in 13 years in 2012 and the recovery should be only modest this year due to the European debt crisis and a slow US recovery.
The South Korean won appreciated nearly 8% versus the dollar last year, helping reduce import costs of steelmaking ingredients iron ore and coking coal.
Prior to the earnings announcement, shares in Posco, backed by billionaire investor Warren Buffett, ended down 0.1% in a wider market that rose 0.8%.
Shares in Posco, which trails ArcelorMittal and China's Baosteel in steel production, have been rebounding since late November on hopes China's economy will rebound.