Seoul: Posco, the world’s No.3 steelmaker, reported a weaker-than-expected 9% rise in quarterly profit and cut 2010 profit forecast by 7%, hit by weak overseas demand and high raw material costs.
Steel mills are sitting on expensive raw materials purchased in the previous quarter, but softening demand from car makers, shipbuilders and contractors is making it difficult for them to fully pass on the costs to customers.
South Korea’s Posco, the first major Asian mill to report July-September earnings, reported a 40% fall in quarterly profit from the 2010 peak struck in the second quarter.
Posco slashed its 2010 operating profit target by 7% to won 5.2 trillion ($4.7 billion), suggesting its fourth-quarter profit would slide 27% from the third quarter to around 800 billion won.
“Looking ahead to the fourth quarter and next year, we are slightly concerned about steel demand and pricing... I think there are a couple of better alternatives within the steel sector; companies with better earnings visibility than Posco,” said Kim Young-chan, a fund manager at Shinhan BNP Paribas Asset Management.
Analysts say the short-term outlook is murky as China’s efforts to cool its property market are denting demand from the world’s top consumer of steel.
Posco, which overtook Japan’s Nippon Steel last year to rank just behind ArcelorMittal and Baosteel in terms of steel output, said its third-quarter operating profit was won 1.1 trillion ($985 million).
This was lower than a consensus forecast of won 1.27 trillion polled by Thomson Reuters I/B/E/S, and up 9% from a year ago but down 40% from the proceeding quarter.
Posco raised steel prices in April and July this year, but the two price hikes were not enough to cover expensive raw materials costs.
Posco shares closed down 2.3% in a broader market down 1.2% before the results were announced. Posco shares have fallen about 14% this year, underperforming a 12% gain in the broader market.