Posco Expected To Report $780 mn OP In Q3: Market Consensus

7 October 2016

South Korea’s largest steelmaker Posco Co. is estimated to have registered robust earnings of close to $800 million in the third quarter thanks to a recovery in global steel prices from downscaling by Chinese rivals and the company’s own cost-saving endeavors.

According to local brokerage houses, Posco is projected to have earned an operating profit of 866 billion won ($780 million) during the July-September period on a consolidated basis, up 33 percent from a year ago and 28 percent from the previous quarter. It would be the highest quarterly profit in two years for the company that has raked in an operating profit hovering between 300 billion won and 700 billion won since it reported 879 billion won in the third quarter in 2014. A few market analysts even projected the steelmaker’s operating profit would top 900 billion won in the third quarter.

Posco would have benefited from the ongoing restructuring in Chinese steel mills cited as a major overcapacity culprit that had weighed down on global steel prices and market. The Korean steelmaker was also helped by its shift of focus on high-value products such as automotive steel sheets.

Posco’s affiliates at home and abroad have done better. Its overseas steel business that posted a combined operating loss of 117.3 billion won for the third quarter ended September last year was able to reduce the loss to 91.2 billion won in the fourth quarter last year. Market observers forecast Krakatua Posco, steel mill in Indonesia that has posted massive losses weighing on its parent Posco, to have swung to operating profit in the third quarter.

The company’s construction unit, Posco Engineering & Construction Co. that reported operating loss in the second quarter is also projected to have returned to black in the third quarter.

The steel maker registered 1.34 trillion won in operating profit in the January-June period this year, and its full-year operating profit may exceed 3 trillion won this year, according to market analysts. Posco’s operating profit for this year is expected to nearly double from last year thanks to a recovery in the global steel market and improvement in its consolidated earnings following the successful reform in its subsidiaries, said Kim Mi-song, an analyst at LIG Investment & Securities Co.

But the positive outlook hinges on the outcome of the Chinese steel restructuring. Chinese government last month approved the country’s large steel makers Baosteel Group and Wuhan Iron and Steel Group to merge and become the second largest steelmaker in the world. If similar reorganization continues in the global steel industry, the oversupply in the global steel market would continue to ease, accelerating the recovery in the global steel sector, market analysts expected.

The creation of big steelmaker through mergers and acquisitions, like the united Baosteel Group and Wuhan Iron and Steel Group, would help enhance their power to negotiate the steel price, said Choi Moon-seon, an analyst at Korea Investment & Securities Co. But it remains uncertain if the merger between the Chinese steel makers would lead to an immediate improvement in the global steel industry in the fourth quarter, added Choi.

Posco shares closed Thursday at 230,500 won, up 500 won or 0.22 percent from the previous session.


Source : pulsenews.co.kr