Posco operating profit falls 15%

Posco announced Tuesday its operating profit fell 15 percent on year in the second quarter, largely due to the high prices of raw materials and slow global demand for steel.

The company posted 1.07 trillion won ($908 million) in consolidated operating profits in the April-June quarter, down 15 percent year on year. Its sales revenue grew 1.5 percent on year to 16.32 trillion won, while net profit increased 17 percent to 681.4 billion won.

The steelmaker said its operating profit was able to stay above the 1-trillion-won mark for the eighth consecutive quarter despite the difficult market environment thanks to the favorable performance of affiliates like its trading arm Posco International.

Posco International hit a record quarterly operating profit in the second quarter with increased gas sales from its Myanmar gas field. The affiliate’s operating profit jumped 32.4 percent to 180 billion won.

In separate earnings result, the steelmaker alone posted 7.48 trillion won in revenue, down 3 percent year on year, and 724.3 billion won in operating profits, a 12-percent drop. Its net profit fell 6 percent on year to 545.4 billion won.

According to the steelmaker, production line maintenance during the second quarter led to less product production and sales declines. This, coupled with the increased cost of raw materials like iron ore and coking-coal, ate up operating profits.

Posco said the prospects for the global steel market are not promising in the latter half of the year as well, though steel demand from China could improve if the country’s government decides to adopt policies to boost its economy.

The steelmaker is planning on reflecting the hike in raw material prices in its steel prices. A company spokesperson said during a conference call with analysts Tuesday that it has started negotiations with major consumers in the auto, shipbuilding and electronics industry, though talks could take some time as the industries struggle with global economic uncertainties.

Posco shares closed at 239,000 won on Tuesday, up 1.27 percent compared to the previous trading day.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]