(Yearender) S. Korean steel industry set for bumper year in 2010

By Park Sang-soo
SEOUL, Dec. 20 (Yonhap) -- South Korean steelmakers led by industry giant POSCO
can expect to make strong gains in 2010 on the back of growing demand and rising
steel prices, analysts say.
Local steel mills enjoyed bullish demand and higher steel prices into 2008, but
in the wake of the severe economic downturn caused by the collapse of Lehman
Brothers last year, demand from automakers, shipbuilders and other manufacturers
dropped, forcing steelmakers to cut production.
POSCO, South Korea's leading steelmaker, cut output in December last year for the
first time in its 41-year history on weakened demand. The company maintained the
trend until June this year.
Slumping demand also forced the world's fourth-largest steelmaker to reduce
prices for such steel products as hot-rolled coils by 20 percent in May this
year, marking the first price cut since January 2006.
But with steel production back on the rise since last summer and prices beginning
to return to pre-crisis levels, there is growing optimism that the global steel
industry is now recovering from its worst recession in decades, boosted by a raft
of economic stimulus plans across the globe.
"Steelmakers are increasing production on expectations of a rise in demand," said
Lee Chang-mok, an analyst at Woori Investment & Securities. "Steel prices will
also begin to take an upward path in the first half of next year after facing a
correction phase in the current quarter."
POSCO forecast that the industry's recovery will extend through the fourth
quarter of this year and into 2010, predicting that global steel demand will grow
9 percent to 1.21 billion tons next year, with demand from developed countries
expected to rise by 15 percent and that from emerging market countries by 10
percent.
Analysts say that POSCO and other South Korean steelmakers are well positioned to
make a strong showing down the road, backed by healthier demand from local
automakers for flat steel amid robust domestic and overseas sales, according to
analysts.
"Local players are expected to maintain their recovery pace next year, backed by
steady demand and rising prices that stem from the increased costs of raw
materials," said Kim Yun-sang, an analyst at IBK Investment & Securities.
Reflecting such optimism, POSCO raised its full-year operating profit forecast by
23 percent to 3.2 trillion won (US$2.75 billion) in October, adding to mounting
evidence that the worst for the steel market has passed
POSCO also raised its 2009 sales target to 27.1 trillion won from 25.8 trillion
won, although it lowered its annual crude steel output estimate to 29.5 million
tons from 29.8 million tons.
In July, POSCO restarted its No. 4 furnace in the southwestern city of Gwangyang
as the economy began to show signs of recovery. The 3.1-million ton furnace was
shut down for an overhaul in February, well ahead of schedule.
But amid the growing optimism, there are also reasons for caution, as global
economies have yet to show strong signs of a turnaround.
"Local steelmakers' earnings momentum may slow if economies in Asia show slower
than expected growth and continued weakness," said Kim of IBK Investment &
Securities. "An oversupply situation could also dampen earnings."
Analysts also warned that an increase in output from China could put downward
pressure on steel prices.
"There are concerns of a possible oversupply in Asia and China's macro-economic
outlook next year, which could weigh on steel demand," said Cho In-je, an analyst
at KB Investment & Securities.
POSCO chief executive officer Chung Joon-yang also expressed concerns over a
supply glut last week, forecasting that steel supply in South Korea, China and
Japan may exceed demand by 20-30 percent in a worst case scenario.
POSCO said in October that it would delay completing three plants in South Korea,
saying demand growth may not support such expansion until June next year.
"Global steel demand may not pick up that fast until the end of the second
quarter of next year," said an official at POSCO. "The delay will give us
flexibility to cope with changing business environments in the global market."
The steelmaker will complete the 1.93 trillion won plant by September 2012
instead of its original target of the end of 2011.
It also plans to delay the completion of two plants that make galvanized steel
sheets for automakers by a year to March 2012.
sam@yna.co.kr
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