UPDATE: Posco 2Q Net Plunges 71% On Price Cut, Output Cut
July 13 2009 - 5:00AM
Dow Jones News
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