Posco’s Quarterly Profit Falls 48 Percent

SEOUL, South Korea – Posco, the world’s fifth-biggest steel maker, reported Tuesday its first-quarter profit fell 48 percent amid lower steel prices and higher raw material costs.

The Pohang, South Korea-based company said net profit declined to 681 billion won ($713 million) in the three months through March 31 from the same period last year.

Still, the results beat analysts’ expectations. The average forecast of 12 analysts surveyed by Dow Jones Newswires was for net profit of 600 billion won ($628 million).

Posco’s sales during the first quarter declined 18 percent to 4.66 trillion won ($4.88 billion) from a year earlier.

Global steel makers including Posco are suffering from persistent weakness in prices as excessive supply from China weighed on prices worldwide.

Posco has cut its product prices between 4 percent and 17 percent from the beginning of this year.

China’s booming demand had buoyed world’s steel prices as well as manufacturers’ profits since 2004, but the country’s continued increase in steel output resulted in a supply glut, dumping cold water on the industry from the second half of last year.

Separately, Lee Dong-hee, Posco’s chief financial officer, told reporters the company is considering ways to ward off possible hostile takeover attempts, including increasing stakes of management-friendly parties.

“After Mittal’s bid for Arcelor, the market’s interest in us as a possible M&A target has grown, and we know our share price was boosted by that,” Lee said.

In January, Netherlands-based Mittal Steel Co., the world’s largest steel maker, launched a tender offer to buy rival Luxembourg-based Arcelor SA.

Mittal’s offer raised market expectations that consolidation in the steel industry could accelerate this year.

“We think there’s a possibility of a hostile takeover for us,” Posco’s Lee said, adding that any takeover attempt would be difficult to accomplish.

In March, Posco said it was seeking ways to fend off takeovers, including asking Japan’s Nippon Steel Corp. or local pension and state funds to buy its shares.

Posco shares gained 24 percent in the first three months of this year, partly driven by expectations of a hostile takeover bid.

Posco shares fell 0.6 percent to 239,500 won on Tuesday. The company released earnings after the market closed.