Posco (005490), South Korea’s biggest steelmaker by output, reported a 58 percent decline in third-quarter profit, worse than analysts estimated, following currency losses and as slowing global demand eroded prices.
Group net income, excluding minority interests, was 237.8 billion won ($225 million) in the three months ended Sept. 30 from 567.1 billion won a year earlier, Pohang-based Posco said today in a regulatory filing. That fell short of the 477.5 billion won average of 16 analyst estimates compiled by Bloomberg. Sales rose 7.4 percent to 16.3 trillion won.
Slowing economic growth in China, which makes up half of the world’s steel demand, continued to sap the nation’s consumption of the alloy this year. This has caused prices to drop and squeezed profits at steelmakers globally.
“For the industry demand to pick up, we can only hope that China will cut its production through restructuring,” Kim Hyun Tae, a steel sector analyst at KB Investment & Securities Co. in Seoul, said by phone before the earnings release. “The domestic steel industry is doing better than China, but it’s still not in a good shape.”
Posco shares rose 0.5 percent to 321,500 won at the close in Seoul. The stock has lost 1.5 percent this year, compared with a 4 percent decline in the benchmark Kospi Index. (KOSPI) The earnings were reported after trading ended.
‘Translation Loss’
Profit was dragged down by 72 billion won of currency losses, compared with a gain of 330 billion won a year earlier, according to a presentation. Earnings were also eroded by “a negative financial income of 398 billion won,” the company said, without elaborating.
“Net income fell due to the loss on the translation of foreign currency on accelerated weakening of the won during the third quarter,” Noh Min Yong, senior vice president at Posco’s finance department, said today on an earnings conference call.
The South Korean currency declined 4.1 percent to 1,055.21 won a dollar in the third quarter, compared with a 6.3 percent gain a year earlier, according to prices compiled by Bloomberg.
Operating profit for the period climbed to 878.7 billion won from 633 billion won a year earlier, helped by a decline in key raw material prices, Posco said.
Ore, Coal
The average price of iron ore with 62 percent content delivered to China’s Qingdao port tumbled 32 percent to $90.45 a metric ton during the quarter from a year ago. The drop was more than the decline in steel prices. The average spot price of coking coal during the quarter fell 21 percent to $112 a ton.
“One thing that’s clear is that global demand will not be picking up any time soon,” Samsung Securities Co. analyst Baek Jae Seung said by phone in Seoul, before the earnings were released. “It’s still early to predict how Posco will perform in the fourth quarter.”
Crude steel output at Posco during the quarter climbed to 9.52 million tons from 8.93 million tons a year ago, while product sales increased 4.9 percent to 8.67 million tons. Steel demand in the fourth quarter is expected to climb from the third by a small margin as automobile sales improve, Posco said.
Production of crude steel in South Korea, Asia’s fourth-largest producer of the alloy, rose 9.4 percent in the nine months ended Sept. 30, compared with a 2.3 percent increase in China and 1.8 percent growth in India, according to the Worldsteel Association.
Buoyed by the demand outlook, the company raised its consolidated sales target for this year to 65.5 trillion won from its July estimate of 64.5 trillion won.
Source: Bloomberg