Major Bellwether Steelmaker Says Profit Will Decline, As Shares Get Whacked

Shares of Korea-based Posco — the world’s third largest steelmaker — and a major proxy for global demand, has come out with disappointing earnings and a mediocre outlook, sending its shares down over 2% in Korean trading.

What’s going on? It looks like a classic case of mediocre demand and high underlying costs, as iron ore prices continue to surge.

The announcement isn’t yet up on POSCO’s site — they’re weird that way — but Bloomberg has some of the numbers.

Operating profit will probably be 5.2 trillion won ($4.6 billion) for the 12 months ending Dec. 31, compared with its earlier forecast of 5.6 trillion won, the Pohang, South Korea- based company said today in an e-mailed statement. Sales may reach 32.9 trillion won, compared with a previous estimate of 33.5 trillion won.

Posco, which derives about 70 per cent of sales from the domestic market, boosted prices by as much as 32 per cent this year to offset higher costs of iron ore and coal. Earnings may deteriorate further this quarter, as the use of higher-priced materials will increase, before a rebound in the first quarter next year, according to brokerages including Eugene Investment & Securities Co. and Hana Daetoo Securities Co.

There’s been a major rally in “risk” assets of late. This seems like news that could take some of the news out of other China proxies, like, say, the Aussie dollar, which had something of a rough night after an incredible run.

We’ll be back with more analysis of POSCO numbers as they’re available.


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