POSCO Q2 profit down on weak global demand, price competition

South Korea's POSCO , the world's fourth-biggest steelmaker, reported a 29 percent fall in quarterly operating profit as orders slowed and cheaper imports from China and Japan undercut prices at home.

Global steel demand has been declining, hit by weaker economic growth in top consumer China and Europe's protracted debt woes. POSCO on Tuesday cut its full-year sales outlook slightly to 37.5 trillion won from 37.7 trillion won.

China's waning steel demand, coupled with the country's chronic oversupply, has driven Chinese exports of the metal to the highest level in more than three years, flooding regional markets with supplies.

Shipments from China and Japan, the world's top steel-producing countries, have lowered prices in South Korea where POSCO sells around two-thirds of its products.

 

"South Korean steelmakers including POSCO are conducting a feasibility study on whether to file antidumping complaints against Japanese or Chinese steel imports," said an official at the Korea Iron & Steel Association.

"It is a real headache. Oversupply is a problem facing the global steel industry, and the problem will not abate easily," the official said, declining to be identified because of the sensitivity of the matter.

The rising tide of steel exports has already precipitated a volley of complaints from other countries preparing possible trade action against China on the grounds of alleged predatory pricing.

China boosted first-half exports of the metal used in cars and construction to 27.26 million tonnes, the highest for a six-month period since 2008.

Traders say stockpiles of steel products in major Chinese cities have surpassed 15 million tonnes -- enough to build around 350 of Beijing's National Stadium, also known as the Bird's Nest Stadium because of its striking design.

Posco prices

POSCO said on Tuesday that the average selling price of its carbon steel was 926,000 won per tonne in the April to June quarter, compared with 1.011 million won a year earlier and 930,000 won in the previous quarter.

POSCO, the first major Asian steel mill to report earnings, said second-quarter profit was 1.06 trillion Korean won on a parent basis, compared with an average forecast of 1 trillion won in a Reuters poll of 21 analysts.

While profit was lower than 1.5 trillion won a year earlier, it was a sharp improvement from 422 billion won in the previous quarter, thanks to cost controls.

POSCO's dominant position in the domestic market, along with its cost competitiveness, will help the company outperform its regional peers in this earnings season.

Nippon Steel, the world's No.6 steelmaker, is forecast to report a fall in recurring profit of almost 40 percent to 35.05 billion yen for April to June.

A number of Chinese steel mills have slipped into the red in the first half or seen net profit more than halved because of tepid demand and a sharp decline in prices.

Shares in POSCO, which counts backed by billionaire investor Warren Buffett's Berkshire Hathaway as a major shareholder, have fallen 5 percent this year, compared with a 2 percent drop in the broader market.

The stock rose 0.83 percent on Tuesday to close at 362,500 won, ahead of the earnings announcement.