Posco to beat Q3 forecasts, sees no output cuts

Posco to beat Q3 forecasts, sees no output cuts

Seoul: South Korea’s Posco expects to report forecast-beating third-quarter results driven by robust sales and will keep output steady as its products are in short supply, a senior executive said on 22 September.

“Third-quarter results will be better than market consensus due to strong sales and steady progress in our cost saving programme... we also expect 2008 profit to top previous guidance," Lee Dong-hee, chief financial officer at the world’s No.4 steelmaker, told reporters.

Posco reported record-breaking results in the previous two quarters and raised its 2008 forecast to reflect a series of price increases.

It had been expected to post a 1.6 trillion won ($1.4 billion) operating profit for the current quarter on sales of 8.6 trillion won, according to 10 analysts polled by Reuters Estimates.

In July, Posco, which trails Japan’s Nippon Steel and JFE in terms of output, raised its 2008 sales target by 11% to 31 trillion won and operating profit target by 19% to 5.7 trillion won.

“We expect Posco to beat market consensus, thanks to raw material inventory, which it has built up at lower costs earlier this year, but fourth-quarter results may come under pressure if the won weakens further as it will inflate costs of raw material imports," said Lee Jong-hyung, an analyst at Dongbu Securities.

Global steel firms reported strong results in the first half but growth momentum is weakening as they complete annual contracts for iron ore and coking coal supplies at sharply higher prices and as the global economy slows.

Lee said Posco was not considering cutting output to boost steel prices, a move its bigger rival ArcelorMittal plans to make as demand for long steel products, used mainly in the construction industry, weakens due to the credit crisis and troubled housing markets.

“We are doubtful about the impact of a production cut as it will be offset by an output increase by a rival producer... and we are not considering reductions at all because our products are in short supply conditions," Lee said.

Signs of a softening price outlook have increased in recent months, with China’s Baosteel cutting prices for cold-rolled steel products for the fourth quarter due to weak demand from the auto and home appliance sectors.

“Steel prices are weakening a little bit and it may have some impact on contract prices for the first half of next year, but for now we may raise prices of certain products," Lee said.

By 0415 GMT, shares in Posco, South Korea’s second-biggest company with a market value of about $34 billion, were up 3.3%, beating a 0.3% gain in the broader market.