South Korean steelmaker Posco (005490.SE) Monday posted a 71% decline in second-quarter net profit compared with a year earlier due to product price cuts and a lower output.

Net profit for the three months ended June 30 plunged to KRW431 billion ($330 million) from a revised KRW1.476 trillion a year earlier, the company said in a statement.

"Product price cuts by up to 20% in May before injection of cheaper 2009 raw materials largely cut into the quarterly results," Posco Chief Financial Officer Lee Dong-hee told analysts in an investor relations session after the announcement of second-quarter earnings.

The result was better than expected. A Dow Jones poll of 13 analysts had predicted net profit at KRW240 billion.

The steelmaker was able to buy raw materials at lower prices from April as global iron ore prices moderated. It agreed to buy fine iron ore from Australian miners at prices that are 33% lower in the April 2009-March 2010 period compared with a year earlier. Coking coal prices were agreed at 57% lower. Analysts expect Posco to start using the cheaper raw materials from July.

But Posco said earnings "hit the bottom" in the second quarter, and it expects to post a steep recovery in earnings in the second half, helped by cheaper raw materials and reviving demand from carmakers and shipbuilders.

"Operating profit will likely jump at least three times in the second half from about KRW500 billion in the first half," said Lee who also serves as president of the world's fourth-largest steelmaker by output.

In the second quarter, operating profit fell 91% on year to KRW170.5 billion from KRW1.885 trillion, while sales were down 15% to KRW6.344 trillion from KRW7.458 trillion.

Lee said Posco expects to conclude iron ore price talks with BHP Billiton Ltd. (BHP.AU) this month and currently has no plan to raise domestic product prices for this year.

Posco, which aims to cut KRW1.295 billion in costs and has earmarked KRW7.3 trillion in capital expenditure this year, has revised down its annual sales target to KRW25.8 trillion from the previous KRW27 trillion-KRW30 trillion, said the statement.

In the first half, Posco achieved 65%, or KRW838.4 billion, of the cost-cutting target as it used more of cheaper raw materials in steelmaking process.

In addition, the company said it will maintain operating profit target of KRW2.6 trillion but raise its annual crude steel production target to 29.8 million metric ton from 28 million ton.

-By Kyong-Ae Choi, Dow Jones Newswires; 822-2198-2236; kyong-ae.choi@dowjones.com