Posco to double its spending; sees global demand up 10%

Posco to double its spending; sees global demand up 10%

Seoul: South Korea’s Posco, the world’s No.4 steelmaker, on Monday forecast global steel demand would increase by about 10% this year, while local media said the company would double its spending on facilities and aquisitions.

The company also expects iron ore and coking coal prices to recover this year, Park Myung-kil, a senior vice president at Posco, said in a document released for a parliamentary economic forum.

“Global steel market recovery will depend on how much actual demand will recover in developed countries, and how supply and demand will change in China," Park said in the document.

He added that policy changes to reduce greenhouse gas emissions would be a cost burden to global steel producers. Posco plans to increase its crude steel production to 32 million tonnes this year from below 30 million tonnes in 2009.

Analysts expect Posco to raise its steel product prices in the second quarter as it has yet to negotiate raw material purchase deals for the fiscal year starting in April.

Last month, analysts said cost pressures would be a major driver of global steel prices this year, with bottlenecks in the steel supply chain as well as in key raw materials such as iron ore and coking coal likely to keep prices buoyant.

To double investment

Posco will spend 10 trillion won ($8.9 billion) this year on expanding its facilities and on acquisitions, the Korea Economic Daily reported, citing industry sources. Last year, it spent 5 trillion won.

A week ago, a Posco spokeswoman said the steelmaker had earmarked up to 4.6 trillion won for 2010 capital expenditure.

Posco also set its 2010 operating profit target at 6 trillion won on sales of 30 trillion won, the newspaper reported.

“We expect Posco’s earnings to pick up this year on the back of recovering demand from the auto, electronics and shipbuilding industries," said Shin Yoon-shik, analyst at Meritz Securities.

Posco officials declined to comment on the report, but a spokesman said the company would release targets and spending plans along with its 2009 fourth quarter results on Thursday.

Analysts see Posco’s operating profit rising to 1.6-1.8 trillion won in January-March, the highest since the third quarter of 2008.

“The investment target sounds somewhat aggressive, higher than markets had expected. This probably includes Posco’s India production unit construction, and potential acquisitions this year such as Thainox," Shin added.

Posco has been tipped as a candidate to buy energy developer Daewoo International Corp and Daewoo Shipbuilding & Marine Engineering Co Ltd, which creditors are set to put up for sale this year.

Posco also hopes to complete negotiations soon on its acquisition of Thainox Stainless, Southeast Asia’s top stainless steel producer, Posco president Lee Dong-hee told Reuters last week, adding the talks had been going well.

Thainox shares rose nearly 6% in Bangkok on Monday, touching a near-5-year high.

Posco closed up more than 3.1%, having touched its highest level since 10 December 2007, and beating the broader market’s 0.07% decline.