By Sungwoo Park
April 13, 2010, 4:47 AM EDT
April 13 (Bloomberg) -- Posco posted a more than fourfold jump in first-quarter profit, beating analysts’ estimates, after Asia’s third-largest steelmaker increased output to meet rising demand from makers of cars and home appliances.
Net income rose to 1.44 trillion won ($1.3 billion) in the three months ended March 31, from 325 billion won a year ago, the Pohang, South Korea-based mill said in an e-mailed statement. Posco raised its full-year sales forecast by 8 percent.
Orders for Posco and rivals are picking up as the global economic recovery accelerates, allowing steelmakers to raise prices. ArcelorMittal, the world’s biggest steelmaker, said this month prices may need to increase by 21 percent to help cover raw material costs that rose as much as 90 percent.
“It may not be easy for Posco in the second quarter,” said Kim Do Joon, who helps manage $1.5 billion of assets in Seoul at Hanwha Investment Trust Management Co. “Demand will be stable but the problem is price. Posco may not be able to fully raise prices to reflect cost increases.”
Posco, which counts Warren Buffett’s Berkshire Hathaway Inc. as a stakeholder, fell 1.3 percent to close at 538,000 won in Seoul trading. The announcement came after the market closed. The profit beats the 1.22 trillion won median estimate of 19 analysts compiled by Bloomberg, and the gain is the biggest in almost nine years on a quarterly basis.
The steelmaker raised its 2010 sales forecast to 31.9 trillion won and its estimate for full-year crude steel output to 34.5 million metric tons from a previous forecast of 34.4 million tons, it said today.
The business environment “is not that bright” because of rising iron ore and coal costs, Chief Financial Officer Choi Jong Tae said in Seoul today at an earnings conference. The company would need to “adjust” prices, Hwang Eun Yeon, senior vice president, said at the conference, without elaborating.
Posco said March 10 its product prices may need to increase by up to 20 percent because of rising material costs. The mill may raise benchmark hot-rolled coils prices by 25 percent to 850,000 won in the second quarter, Seoul-based Cindy Park, an analyst with Nomura International Ltd., said April 8.
The Korean steelmaker said April 2 it “provisionally” agreed with Brazil’s Vale SA, the largest iron ore supplier, to pay up to 86 percent more for the raw material for the quarter started April 1. Posco said March 30 it agreed with some suppliers to a 55 percent increase in hard coking coal prices for the April-June quarter.
Posco will continue to buy mining assets to boost self- sufficiency in raw materials to at least 50 percent to help counter rising iron ore and coal costs, it said today.
First-quarter operating profit more than tripled to 1.45 trillion won from 373 billion won a year earlier, while sales rose 7 percent to 6.95 trillion won, Posco said today. The mill sold 7.5 million tons of steel in the quarter, up 26 percent from a year earlier, it said.
“Things are better this year because plants resumed full operations,” Shin Yoon Shik, an analyst with Meritz Securities Co. in Seoul, said before the results. “As far as the next quarter’s outlook is concerned, a key question is by how much Posco will raise prices. I believe Posco will be able to cover cost gains through price increases.”
Steelmakers will raise prices globally as they run down inventories and raw material costs gain, Baoshan Iron & Steel Co. said March 25. Spot average prices for hot-rolled sheets in China, a regional benchmark, have risen 18 percent this year.
Posco derives about 70 percent of sales in South Korea and sells steel to carmakers including Hyundai Motor Co. Hyundai Motor and Kia Motors Corp. led a ninth straight gain in monthly car sales in March in South Korea. Sales at Hyundai, the nation’s biggest carmaker, gained 36 percent in March and Kia increased sales 55 percent.
The steelmaker today said it expects to get a decision from India regarding mining rights for its $12 billion project in the state of Orissa in the second quarter, and aims to start work to prepare for construction in the second half.Share Investor LinksDownload the 2009 Warren Buffett Letter & 2009 Annual Report to Berkshire Hathaway Shareholders
Download the 1977 - 2009 Warren Buffett Letter's to Berkshire Hathaway Shareholders
Recommended Amazon Reading
|Warren Buffett's Management Secrets: Proven Tools for Personal and Business Success by Mary Buffett |
Buy new: $16.50 / Used from: $13.20
Usually ships in 24 hours
|The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham|
Buy new: $14.77 / Used from: $10.49
Usually ships in 24 hours