POSCO marks the smallest profit amid steel oversupply from China

By Staff Writer

Jan 30, 2016 12:08 AM EST

South Korean steelmaker POSCO in a regulatory filing announced a net loss of 96 billion won for the year 2015, compared to net profit of 557 billion won in the year 2014. Consolidated net profit, excluding minority interests, amounted to 181 billion won for 2015, down from 626 billion won in the previous year.

Analysts anticipated a profit of 85.5 billion won, according to the median of 21 analysts polled by Bloomberg.

According to the steelmaker, the net loss was mainly due to weak operating results of its subsidiaries as well as high valuation losses. Raw material price fall combined with exchange rate hike pushed the company to recognize valuation losses of 1.6 trillion won on external issues.

Annual operating profit declined to 2.41 trillion won from 3.21 trillion won reported last year. POSCO said its gross profit amounted to 6.53 trillion won in 2015, down from 7.3 trillion won in 2014. Consolidated revenue fell to 58.2 trillion won from 65.1 trillion won last year.

For the year 2016, the company expects to report revenues of 58.7trillion won on the consolidated basis and capital expenditure of 2.8 trillion won.

Bloomberg noted that raw material prices have plunged as demand in China contracts creating an excess and urging mills to sell huge amounts to foreign nations. Kwon Oh Joon, chief executive officer of POSCO, said that the company is struggling hard primarily because China is providing the market with cheap products backed by the government.

The steelmaker has responded to China's activity by focusing on higher value products. As part of restructuring strategy, POSCO vowed last year to reduce the number of domestic divisions to 22 from 42 by 2017 and cut foreign business to 117 from 167. The company expects to restructure 35 more units in 2016.

POSCO plans to enter into a preliminary deal with the Iranian steel producer PKP in March to purchase a stake in the Middle Eastern steel mill project worth $1.6 billion, Reuters said citing a source familiar with the situation. In September, the companies signed a MoU to construct a plant in Iran's Chabahar free economic zone with the production capacity of 1.6 million tonnes per year.

The company earned nearly half of its revenue from the production of steel in the third quarter and the rest from construction and trading. "Uncertainty remains over the restructuring plans as it's still hard to grasp how effective they've been in improving its finances," Baek Jae Seung, a metals analyst at Samsung Securities Co, said Bloomberg.

According to POSCO CEO, it is impossible for the company to produce steel at the equal level as that of China and be competitive. The company attributes its first loss to the oversupply of steel from China which could not be encountered by POSCO.

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