Posco says earnings uptick likely in Q1

Posco, the nation’s leading steelmaker, is likely to see its earnings improve in the first quarter of the year on decreased input costs and an increase in seasonal demand, analysts said yesterday.

The steelmaker reported Tuesday that its fourth-quarter operating income dropped 55 percent on-year to 379 billion won ($351 million) on higher raw material costs and lower steel prices, and sales sank 9.4 percent on-year to 8.07 trillion won over the cited period.

China’s economic slowdown and Europe’s fiscal crisis have reduced demand for steel used in houses, cars and ships, decreasing profits from global steelmakers.

“The poor performance was due to higher iron ore prices and weak demand from shipbuilders and other companies,” said Kim Jung-wook, an analyst at Hana Daetoo Securities.

The analyst said a decline in input costs and a stronger Korean won will help boost Posco’s profitability in the first quarter of the year. “Also, Posco may be able to increase prices as Chinese firms are expected to boost inventories ahead of and after the coming Lunar New Year holidays,” he said.

Kim projected that Posco’s first-quarter operating income would reach 636 billion won with its operating margin rising to 8.1 percent from 4.7 percent in the previous quarter.

Posco forecast sales may fall this year as waning orders from carmakers and shipbuilders lowered prices, reaching 32 trillion won, down from 35.7 trillion won recorded last year.

KDB Daewoo Securities analyst Lee Jun-ki said the global steel industry is on a recovery track. “The fourth-quarter results were so bad, but the market conditions are improving,” he said. The analyst estimated the first-quarter operating income to reach 697 billion won.

Cho Kang-un, an analyst at Shinyoung Securities, said the global steel industry might have hit rock bottom during the fourth quarter, and the sector may improve down the road.

“However, weak demand from shipbuilders and home appliance makers may continue to limit any meaningful rebound,” he said.

Yonhap