Posco, South Korea's biggest steelmaker, reported the largest quarterly loss in at least five years amid losses on foreign exchange and mining assets, a lawsuit settlement and as a deluge of Chinese exports pushed down world prices.

The net loss, excluding minority interests, was 534.2 billion won ($474 million) in the three months ended September, from a 237.8 billion won profit a year earlier, the Pohang-based company said Tuesday. That compares with an expected loss of 156 billion won, according to the average of 13 analyst estimates compiled by Bloomberg.

World steel producers are struggling with a flood of Chinese exports as the country's demand contracts for the first time in a generation. Shipments climbed 16 per cent to a record 11.25 million metric tons in September and soared 27 per cent in the first nine months. The company, whose shares fell to the lowest in almost 11 years in October, has announced a turnround plan to quit non-core operations and focus on its mainstay steel.

"As domestic demand shrinks, China continues to oversupply the market by boosting exports, which makes countries like South Korea suffer from falling prices," Baek Jae Seung, a Seoul-based analyst at Samsung Securities Co, said by phone before the earnings were announced.

The loss mainly reflected 380 billion won of foreign-exchange losses from dollar-denominated debt, a 263 billion won value loss in mining assets, and a lawsuit settlement, the company said. Posco paid 30 billion yen ($250 million) to Nippon Steel & Sumitomo Metal Corp to settle cases over alleged patent infringement and illicit technology acquisition, the Tokyo-based company said last month.

Operating profit, or sales minus the costs of goods sold and administrative expenses, dropped to 651.9 billion won from 878.7 billion won a year earlier. That compares with the 710.7 billion won average of analyst estimates.

Global steel demand will contract by 1.7 per cent this year, the World Steel Association said this month, reversing an April forecast for a 0.5 per cent increase. Consumption in China will decline 3.5 per cent in 2015 and slide a further 2 per cent next year, it said. With production slowing less than demand, mills are churning the surplus onto global markets, pushing down prices and spurring trade tensions from Asia to the US.

China's steel exports climbed to 83.1 million tons through September, approaching the 98.1 million tons produced by ArcelorMittal, the biggest steelmaker in 2014, World Steel Association data show. Prices of reinforcement bar in China have fallen 29 per cent in the past year and are near the lowest level since at least 2003.

Posco said in July it will cut the number of local units to 22 from 42 by 2017, while reducing overseas businesses to 117 from 167. The company, which has operations from Argentina to Mongolia, earned almost half its revenue from steel in 2014, with 33 per cent from trading and 12 per cent from construction, exchange filings show. The shares have slumped 43 per cent in the past year as the benchmark Kospi index rose 5.7 per cent.

The company was the world's fifth-biggest producer in 2014 with output of 41.4 million tons, according to the World Steel Association. That compares with 49.3 million tons for Nippon Steel and 98.1 million tons for ArcelorMittal. The announcement came after the market shut.

 

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