POSCO Q3 profit falls, hit by stainless steel

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Seoul, Oct 16: POSCO, the world's fourth-largest steel maker, reported an unexpected 1.2 percent fall in quarterly profit on Tuesday as weak stainless steel prices outweighed strong global steel demand.

The company also made small adjustments to its full-year forecasts, lowering its 2007 operating profit forecast to 4.5 trillion won from 4.6 trillion and its 2007 sales forecast to 21.8 trillion won from 22.7 trillion.

Analysts, however, expect strong prices for carbon steel products and rebounding stainless steel prices to support POSCO's current fourth quarter profit.

''We don't need to be disappointed about the third-quarter result, as the outlook for POSCO is very bright. I think the global steel sector is likely to be well supported by growth in investment booms in China and the Middle East,'' said Choi Yong-kyu, fund manager, at IBK-SG Asset Management.

The South Korean steel maker announced last week it would raise the prices of its steel plates for shipbuilding by 9.9 percent, effective from Oct. 25, due to rising demand and higher raw material costs.

Global prices of steel products, particularly for shipbuilding, have risen as strong global trade is prompting shipping lines to order more vessels.

The South Korean steel maker , which has been forging alliances to fend off feared hostile takeover bids, earned a net profit of 871 billion won ($949 million) for the three months to Sept. 30, against a revised profit of 882 billion won in the same period a year ago and 1.11 trillion won in the second quarter.

The result fell short of a consensus forecast of 922 billion won by seven analysts surveyed by Reuters.

Sales were 5.26 trillion won, also slightly lower than 5.3 trillion a year ago.

POSCO said reduced output of stainless steel and maintenance shutdown at its main blast furnace led its steel products sales to fall 2.1 percent to 7.4 million tonnes from previous quarter.

Stainless Steel recovery

POSCO, however, said its stainless steel business, which has struggled because of weak nickel prices, has started to rebound after the nickel market hit a bottom.

Customers had delayed ordering stainless steel, anticipating further drops in the price of nickel, which accounts for about 60 percent of the cost of making the alloy.

After hitting a one-year low of $25,050 in August, global nickel prices had risen to $32,300 per tonne on Monday.

Reflecting the rebound in nickel prices, POSCO raised prices of its major stainless steel products by 8 percent early this month, after lowering prices four times between May and September.

POSCO also cut its stainless steel output by 135,000 tonnes from July to September.

Shares in POSCO, South Korea's second-largest company with a market value of $65 billion, gained 51.7 percent in the third quarter, outperforming an 11.6 percent rise in the KOSPI <.KS11>.

POSCO was the world's fourth-largest steel maker by output in 2006, following Arcelor Mittal , Nippon Steel Corp <5401.T> and JFE Holdings <5411.T>, according to the International Iron and Steel Institute.


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