Top Korean steelmaker to gain from China’s blue sky mission

SOUTH KOREA’S top steelmaker is set to reap even more profits from a price rebound spurred by China’s drive to curb bloated industrial overcapacity and pollution.

After Posco’s profits beat analyst expectations in the third quarter, the Pohang-based company predicted that earnings in the three months ending December would be higher.

China’s curbs, combined with resilient domestic demand, has slashed steel exports in 2017 to the lowest in four years and pushed prices to the highest since at least 2013. World mills are on a roll. Hesteel Co and Angang Steel Co are expecting net income to more than double in the first nine months.

“The fourth quarter looks promising for Posco as the plunge in Chinese shipments is significantly easing pressure, while prices continue to rise as China seeks to clean up its environment,” Kim Yoonsang, an analyst at HI Investment & Securities Co, says by phone from Seoul. “Profit margins are expected to further improve and the surge in steel prices during the third quarter will be fully reflected in the earnings at the end of the year.”

The shares climbed 2.9% in Seoul yesterday, taking gains this year to 32% after a 55% increase in 2016, which was the first annual gain in seven years. Analysts have 30 buy recommendations on the producer, six holds and no sells, according to data compiled by Bloomberg. Hesteel has surged 29% in China, while Angang Steel’s up 48% in Hong Kong.

Posco chalked up an operating income of 1.13 trillion won (US$1bil) in the three months through September, compared with 1.03 trillion won a year earlier, according to a company statement on Thursday. Analysts expected a profit of 1.12 trillion won.

“We will increase prices as much as possible in the fourth quarter, reflecting the global market conditions, and expect our earnings in the fourth quarter to exceed profits in the past three months,” Jeong Tak, head of the steel business strategy department, says on an conference call.

Net income, excluding minority interests, in the latest quarter was 869.4 billion won, beating the 714.5 billion won profit estimated by analysts, and compared with 545.7 billion won a year earlier, according to the company. — Bloomberg