Posco to cut production for the first time

Posco, the world’s fourth largest steelmaker, will cut raw steel output for the first time in its 40-year history, as major customers, including automakers, idle plants, the company announced yesterday.

Korea’s top steelmaker said it would reduce production by 200,000 tons this month and by 370,000 tons next month. The company had initially planned to produce 33.4 million tons this year.

“We had delayed the timing of the cut in output as long as possible,” Posco said. “But many of our customers will suspend operations in their production facilities in late December and early January and our export prices have tumbled recently. So we have decided to reduce production in an effort to maintain profitability.”

The Korean steelmaker has joined its foreign rivals including ArcelorMittal and Nippon Steel Corp., in a series of production cuts.

“We will decide whether to reduce output further in February or later, after reviewing changes in the market situation,” a Posco spokeswoman said. She added that the planned production cuts would not affect Posco’s aggressive investment plans for next year. Last week, the steelmaker said it would make a record local investment of 6 trillion won ($4.4 billion) in 2009.

Korea’s automakers, important customers of Posco, began to cut output in earnest this month, after their combined sales slid nearly 9 percent last month compared to the year before. GM Daewoo Auto and Technology, the Korean unit of the troubled U.S. auto giant General Motors, stopped operation of its Gunsan Plant in North Jeolla yesterday. It previously had planned closing next Monday. Its Bupyeong No. 2 Plant in Incheon has sat idle since the start of this month. All of GM Daewoo’s factories, including the Bupyeong No. 1 plant, close on Monday and won’t reopen until Jan. 5.

Renault Samsung Motors, the Korean unit of France-based Renault SA, will shut down all its production lines for five working days starting Dec. 24. And on Wednesday, Ssangyong Motors, the local unit of China’s SAIC, started a two-week suspension of operations.

Korea’s two biggest automakers, Hyundai Motor and its affiliate Kia Motors, have slashed overtime work to reduce output.

The Korea Iron and Steel Association recently forecast steel production in Korea would fall 1.6 percent to 53.11 million tons next year.

By Moon So-young Staff Reporter [symoon@joongang.co.kr]