(News Focus) POSCO's new CEO tasked with battling downturn

SEOUL, Feb. 27 (Yonhap) -- The newly appointed chief executive of POSCO, South Korea's largest steelmaker, faces an uphill battle in steering his company through a severe industry slump, analysts said Friday.

The appointment of Chung Joon-yang, 61, by POSCO's shareholders comes as the
steel industry faces plunging demand amid a global downturn in auto and machinery
sales that is forcing mills worldwide to cut output.
"The top task for the new CEO is to help POSCO ride out the current industry
downturn, and boost falling profitability," said Kim Kyung-choong, an analyst at
Samsung Securities.
POSCO, which cut its steel production for the first time in its 40-year history
in December, said last month it would continue to cut output in February for the
third consecutive month and warned it may have to extend such cuts through the
quarter due to reduced demand from automakers and shipbuilders.
The steelmaker reported a record profit of 4.45 trillion won (US$2.93 billion)
last year on sales of 30.64 trillion won. Its annual operating profit surged to
more than 50 percent to a record of 6.5 trillion won, but its fourth-quarter
profit was lower than expected, coming in at 721 billion won.
Market experts said Chung, a 30-year veteran engineer, will be able to improve
POSCO's competitiveness in advanced production due to his technological
expertise.
Chung joined POSCO in 1975 and has held executive positions since 2004, starting
as head of the Gwangyang mill. Only in November of last year did he switch over
to POSCO Engineering & Construction as chief executive of its construction unit.
His experience may serve him well, but experts have emphasized that Chung has his
work cut out for him.
"The first-quarter will be challenging," said Yang Kee-in, an analyst at Daewoo
Securities. "The steel industry is vulnerable to economic cycles, and POSCO's
business performance may not be so good this year."
Yang said the weaker won -- Asia's worst-performing currency last year -- is
expected to increase the steelmaker's raw material costs and erode its
profitability. POSCO forecast earlier that sales would fall by up to 12 percent
this year and steel output could drop by as much as 12 percent to 29 million
tons.
Analysts said the new CEO will also have to carefully weigh capital spending,
including acquisitions and international investments. Last year, the steelmaker
bought a 60-percent stake in MEGS, Malaysia's sole electrolytic galvanized
steelmaker, for $16 million in its first overseas acquisition.
POSCO is also seeking to build a $12 billion steel mill in iron-rich Orissa on
the east coast of India. The South Korean steelmaker signed a memorandum of
understanding with the Orissa government in June 2005, but the project has been
delayed due to opposition from residents, who face being displaced.
POSCO is also building a $490 million steel mill at the Phu My industrial complex
near Ho Chi Minh City in southern Vietnam. It plans to complete construction by
the end of 2009.
"The new CEO is expected to proceed with overseas investment projects," said Kim
Ji-soo, an analyst at Goodmorning Shinhan Securities. "He may seek further
overseas investments in times of economic downturn."
POSCO said earlier it plans to spend up to 7.5 trillion won on investment this
year, a huge increase from last year's 4.9 trillion won.
"Rather than building new mills overseas, POSCO may consider taking over foreign
rivals as their market values have dropped recently," said Lee Chang-mok, an
analyst Woori Investment & Securities. "Through increased facility investment and
acquisitions, POSCO will be able to better compete with rivals," he said.
Analysts said Chung is also tasked with managing the firm free from outside
influence.
"The appointment of Chung has eased investor concerns that a new CEO would be
brought in from outside the steel industry," said Kim of Samsung Securities.
Lee Ku-taek, who served as POSCO's chief executive beginning in 2003, said
earlier this month he was stepping down so a new leader could help the company
ride out the economic crisis. He denied media speculation he had come under
pressure to resign from the government.
POSCO is a formerly state-owned company but went public in 1988 and was fully
privatized in 2000. Though more than 40 percent of the company is currently owned
by foreign investors, the company has typically seen changes in its management
when a new local government takes office.
Unlike South Korea's family-run "chaebol" firms such as LG and Samsung, POSCO has
separate ownership and management structures.
sam@yna.co.kr
(END)