Seoul: Posco, the world’s No. 4 steelmaker, expected a further recovery in the global steel industry and raised its 2010 sales target, as an economic rebound drove demand from China and auto and appliance manufacturers.
Asian steelmakers led by Japan’s Nippon Steel and China’s Baosteel are set to raise steel prices to defend margins after agreeing to pay nearly double for iron ore imports and accepting a quarterly pricing system instead of annually fixed deals.
But the flagging construction and shipbuilding industries, major steel consumers, may hold back steelmakers’ efforts to fully pass on soaring cost pressure to customers, denting their second-half earnings outlook, analysts say.
“Steel trading has improved both in the domestic and overseas markets, lifting our sales and shipments...we expect the market would continue its recovery and thus decided to raise 2010 sales and production forecasts,” Posco said on Tuesday in a statement.
The South Korean firm lifted its 2010 sales target by 8% to 31.9 trillion won ($28.6 billion) and crude steel output forecast by 100,000 tonnes to 34.5 million tonnes.
Posco, which ranks behind ArcelorMittal, Nippon Steel and Baosteel, is expected to make two rounds of price increases between now and the third quarter.
They would be its first increases since it unexpectedly slashed prices last May due to sagging demand and cheaper raw material costs.
The increases may also help Posco report better earnings this quarter as it has yet to use up all the cheaper stocks of raw materials imported through March, analysts say.
Posco, the first of Asia’s big steel firms to report March quarter results, posted operating profit of 1.45 trillion won, almost a four-fold jump from the year-earlier’s 373 billion won and compared with 1.6 trillion won three months before.
The results were broadly in line with a mean forecast of 1.5 trillion won from analysts surveyed by Thomson Reuters I/B/E/S.
It reported quarterly sales of 6.95 trillion won, versus a forecast 7.1 trillion won.
Shares of Posco, Asia’s most valuable steelmaker by market value and South Korea’s second-largest listed company, closed down 1.3% at 538,000 won prior to the results announcement.
The stock has lost around 15% from its two-year highs in early January on concerns that soaring raw material costs would hit earnings this year.