Posco Returns to Its Steel Roots With ‘Aggressive’ Cutbacks

Date:2015-07-16 07:22:27
A Recovery For Indian Steel?

Posco pledged to halve its domestic operations and cut overseas units by 30 percent as South Korea’s biggest steel producer focuses on its main business of making the metal.

The conglomerate will “aggressively” exit non-core areas that aren’t competitive, Chief Executive Officer Kwon Oh Joon said at a briefing in Seoul on Wednesday, without identifying which parts of the company. Pohang-based Posco and its affiliates around the world employ about 46,500 people in energy to construction and engineering. It declined to say how many staff would lose their jobs amid the cuts.

Posco is returning to its roots and focusing on improving the quality of the steel it produces as a flood of cheap exports from China pushes prices to the lowest since at least 2003. The company’s shares have slid for three straight quarters and dropped 29 percent in the past year.

“Posco previously tried to seek additional growth in non-steel businesses but the new CEO has scrapped that strategy and written his own by focusing on steel,” Bang Min Jin, an analyst at Eugene Investment and Securities Co., said by phone. “Because it’s what they know and do the best.”

The company’s drive to export its steelmaking technology, Finex, is an example of how it’s making an effort to concentrate on its core business, Bang said.

Posco plans to reduce the number of its local units to 22 by 2017 from 42 this year, it said. It will cut overseas businesses to 117 from 167 now. The company has operations in markets from Germany to Argentina to Mongolia, according to its website.

Income Drop

Posco’s plan involves the sale, merger and liquidation of businesses, according to a company statement on Wednesday.

“Restructuring units has taken longer than we expected because we have to consider possible job losses,” Kwon said. “Even a small company has thousands of employees and having to persuade them to accept the change is taking us a long time.”

Group net income, excluding minority interests, fell 61 percent to 198.5 billion won ($174 million) in the quarter ended June 30 from a year earlier, missing the 365.1 billion won average of 14 analyst estimates compiled by Bloomberg. Sales fell 9.1 percent to 15.2 trillion won.

The company has already agreed to sell a 38 percent stake in its engineering unit to the Public Investment Fund of Saudi Arabia for 1.24 trillion won.

Steel Output

Posco ranked as the world’s fifth biggest steel producer in 2014 with output of 41.4 million tons, according to the World Steel Association. That compares with 49.3 million tons for the second-largest maker, Nippon Steel & Sumitomo Metal Corp., and 98.1 million tons for ArcelorMittal.

The company’s shares fell 3.9 percent to 209,000 won in Seoul on Wednesday. The announcement came after the market shut.

Prices for reinforcement bar in China, which produces half the world’s steel, retreated 23 percent this year to 2,125 yuan ($342) a metric ton on Wednesday, according to Beijing Antaike Information Development Co. The benchmark last week fell to the lowest since 2003. Exports of steel products by China surged 28 percent to 52.4 million tons in the first six months of this year, customs data show.

Source: Bloomberg

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