Posco posts profit growth in Q2

Posco, Korea’s largest steelmaker, on Thursday posted second-quarter operating profit of 979.1 billion won ($869.3 million), a 28 percent decline from the previous quarter as the company was impacted by a rise in materials cost and decline in steel production due to a factory upgrade.

Compared to last year, however, operating profit grew by 44.3 percent, while revenue increased by 16.2 percent. Quarter on quarter, revenue rose by 0.9 percent to 14.94 trillion won.

The quarter-to-quarter drop was largely due to the rising cost of materials like iron ore, which reached above $70 per metric ton (1,000 kilograms) on Thursday, up roughly 30 percent since last month when the rally began. According to Posco, the rise in materials cost cut 106.2 billion won off operating profit.

Expansion of the company’s furnace in Pohang, North Gyeongsang, and repair work on several of its facilities also played a part in the profit drop as it halted operations there and cut steel production by 280,000 metric tons compared to the previous quarter, a company spokesperson said. Less production led to a sales decline of 259,000 metric tons.

Revenue, though, still increased because the price of carbon steel rose by 34,000 won per metric ton during the second quarter. Posco remains optimistic about the third quarter.

“We expect materials prices to fall and operating margins to increase,” said Yoo Byeong-og, head of the corporate strategy office at Posco. “And since the facility upgrade has all been completed, production and sales are expected to increase, boosting performance in the third quarter.”

This year marks the last in the company’s three-year corporate restructuring plan, and 89.3 percent of the plan has been completed so far, Posco said. The company had laid out 149 projects to help streamline the company, of which 133 have been completed.

As for potential threats to steel exports under President Donald Trump’s push to further regulate steel and aluminum products going into the United States, Posco said the situation will have limited impact on the company because the U.S. only accounts for 1 percent of its export volume.

“We are still considering ways to diversify our markets and strengthen our domestic business to prepare for possible export restrictions,” said Jeong Tak, head of the steel business strategy office at Posco.

Minus the performance of its affiliates, Posco alone posted 7.13 trillion won in revenue, up 18.7 percent year on year, and 585 billion won in operating profit, down 17.9 percent from a year earlier.

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