Posco shares skid to new 9-year low

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Posco shares skid to new 9-year low

Posco’s stock price fell below the 200,000-won ($174.50) level on Friday, a second nine-year low in two days, after the company announced a sweeping restructuring plan.

According to the Korea Exchange, Posco dropped by nearly three percent to close at 197,500 won on Friday, the stock’s lowest level since January 2006. Posco closed at 203,500 won on Thursday.

The drop followed Posco’s announcement Wednesday of restructuring plans, including reducing the scale of domestic and overseas production lines and suspending its attempt to launch a factory in eastern India.

That latter action stung the company, because it has had its eye on an expansion into the growing Indian market for years. The project, in India’s eastern state of Odisha, has been “tentatively postponed,”

Posco’s CEO, Kwon Oh-joon, spoke to reporters after presenting his corporate restructuring plan Wednesday to Korea Exchange’s Seoul office.

“Until we’re offered a better deal [in negotiations about the Odisha plant], we won’t resume planning, and for now we’ll head west for more downstream work,” he said, referring to a plant the company operates in the state of Maharashtra in western India.

Posco’s proposed Odisha project, which was planned to produce 12 million tons of steel a year, would have been one of Korea’s largest foreign investments. It has failed to take off because of opposition from local farmers and a failure to secure iron-ore mining leases, which India initially promised to the company at no charge.

The Indian government in January decided to auction all mineral resources, including iron ore and limestone deposits. That meant Posco had to bid for its raw material, which would have increased costs. The steel maker was eventually able to overcome local opposition in 2013 and persuade the national government to acquire about 2,700 acres of land for the first phase.

Analysts say the market price fall over the last two days means that investors saw little hope of a turnaround based on Kwon’s plans announced Wednesday, partly because they seem to be too vague. Posco may also have been a victim of bad timing, because other large-cap Kospi issues have also tumbled, contributing to the steel maker’s market woes.

“It is true that investors were somewhat disappointed about Kwon’s restructuring plan on Wednesday,” said an analyst from Samsung Securities who did not want to be identified. “But in fact, investors are just trying to hold on and keep watching how the restructuring plan will turn out. Overall, the Korean steel industry forecast for the second half is not so bright. I don’t think Posco shares would have risen even if the company hadn’t announced the restructuring.”

The analyst continued that Kwon’s announcement of the suspension of its Odisha project did not mean it was dead, but that it will not bet the company’s fate on the project. The Korean industry is in recession because of a shortfall of orders and competition against an increasingly sophisticated Chinese industry.

The same analyst predicted that Posco shares will neither fall nor rebound dramatically, because investors factor into their calculations Posco’s usual dividend of somewhere between three and four percent. That dividend looks increasingly unattractive with a further share price fall.

Finally, the analyst said, sluggish demand is expected from the automobile and shipbuilding sectors in the second half. The steel industry, including Posco, is likely to announce red ink in their next quarterly report.

BY KIM JI-YOON, BLOOMBERG [kim.jiyoon@joongang.co.kr]
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