Posco profit rebounds as steel prices soar on China stimulus

  • Business
  • Thursday, 26 Jan 2017

SEOUL: Posco, South Korea’s largest steelmaker, posted a jump in annual profits as the global industry bounced back after China boosted its economy and prices soared.

Consolidated net income, excluding minority interests, was 1.36 trillion won (US$1.17bil) in 2016, up from 181 billion won a year earlier, the Pohang-based company said. Analysts expected a profit of 1.58 trillion won, according to the average of 24 estimates compiled by Bloomberg.

Chinese export prices jumped more than 90% in 2016, recovering from five years of losses, as the government propped up Asia’s largest economy, strengthened efforts to shutter capacity and promoted mergers. That boosted earnings at local mills with net income at Baoshan Iron & Steel Co, a listed unit of China’s top steelmaker, soaring 770% last year and profit at Hesteel Co more than doubling, according to preliminary figures.

“The earnings show that Posco has been normalizing its businesses, by clearing off losses at its subsidiaries and other costs,” said Choi Woong Pil, chief investment officer at KB Asset Management in Seoul. “I expect the company to make about 2 trillion won of net income this year, though earnings for the first quarter won’t be good because of the big rise in iron ore prices.”

The company’s shares jumped more than 50% in 2016, snapping six years of losses, and closed at 267,500 won in Seoul yesterday before the earnings. The benchmark Kospi stock index was up just 3.3% last year. Steelmaker shares have climbed globally with the Bloomberg World Iron/Steel Index of 75 producers rising to the highest since June 2015.

Chinese mills, which supply about half the world’s steel, saw improved demand from construction, infrastructure and autos in 2016 after the government took steps to stabilize growth before an important political transition this year.

Better demand at home helped lower annual exports for the first time since 2009, with shipments sliding 3.5% to about 108 million metric tons. Posco responded to the global glut by focusing on higher-value products and cutting less profitable operations. Sales of higher-value items increased to about 16 million tons in 2016 from 12.7 million tons a year earlier, making up 47% of sales, while the producer has restructured 126 units since 2014 and will deal with a further 23 by the year-end, the company said.— Bloomberg

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