Posco expects ‘tough’ Q2 on higher Chinese exports

Posco is expecting a “tough” situation during the second quarter of 2015 as rising steel exports from China could put pressure on both South Korean and overseas markets.

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“Exports from China are likely to increase and [an] inflow of low-cost steel products to [the] domestic market will go up,” a Posco executive said in a meeting for investors and analysts on Monday April 21 following the release of the company’s first quarter financial results.

“Recently, Russia has also added to export low-cost materials to Southeast Asian markets, [and] this will put negative pressure on [our] export prices,” the executive pointed out, according to a transcript of the conference posted on Posco’s website.

The South Korean steelmaker suffered a quarter-on-quarter drop of 26,000 Won ($24) per tonne in its average selling prices for carbon steel products in the January-March period, to 670,000 Won ($618) per tonne, and also saw its steel shipments dropping to 8.53 million tonnes from 8.70 million tonnes on a quarterly basis.

A drop in raw materials prices and internal efforts to enhance profitability, however, pushed Posco to record an operating profit margin of 9.2% in the first quarter on a parent-company basis, up from 8.8% in the fourth quarter of 2014 and 7% in January-March last year, the Posco executive noted.

He did not reply a question of whether the company was expecting to maintain a margin of around 9% for the rest of the year.

“The future profitability depends on how we can expand high-end product sales through solution marketing,” he said. “At this point, we cannot say the market condition in the second quarter will be favourable, compared to the first quarter.”

Posco, the world’s sixth-largest steel producer, recorded an operating profit of 731 billion Won ($674 million) on a consolidated basis during January-March 2015, unchanged from a year earlier.

It produced 9.18 million tonnes of crude steel in the first quarter, down from 9.56 million tonnes in the fourth quarter and 9.3 million tonnes in the first quarter of 2014.

The drop was a result of a revamp of the No. 2 blast furnace at its Pohang plant, scheduled between February 6 and May 15 this year, and also a rationalisation program from February 6 to May 17 at its No. 2 steelmaking unit in the same plant.