Posted on 19 Feb 2016
Market watchers predict POSCO has more room to rally this year, as China is likely to restructure the over-capacity in its steelmaking industry and normalize their dirt-cheap steel prices.
The rebound is significant because in the past POSCO shares were widely considered to be "people's stock" because many ordinary retail investors owned them.
"Chinese steel prices began to rebound in December, with prices
increasing an average of 10 percent in the fourth quarter. This ended
five consecutive years of declines that had been cited for dragging down
the whole sector," said Rhee Jae-kwang, an analyst at Mirae Asset
Securities Co. "Korean steelmakers were quick to raise their own prices
in the first quarter. Their stocks rallied recently."
Shares
in POSCO, the world's fifth-biggest steelmaker by output, have jumped
18 percent to 196,500 won (US$160) so far this year from the year's
start of 166,500 won. During the same period, the benchmark Korea
Composite Stock Price Index fell 2.68 percent.
Recovering prices are not the only factor pushing up the steelmaker's stock prices. Institutional investors rushed to buy POSCO stocks starting from December as they took a cue from China for a rebound in the domestic steel sector, analysts said.
They forecast POSCO will make a sharp rebound in the first quarter ending March 31 and probably make a turnaround this year, as recovery in steel prices will shore up its bottom line.
"As the Chinese government is making a strong push to overhaul and reorganize the steel and other industries suffering from overcapacity, POSCO and other domestic steelmakers look set to benefit," Hana Financial Investment Co. analyst Park Seong-bong said.
Hana Financial forecast the Pohang-based steelmaker to post sharply improved earnings results in the January-March period. In the fourth quarter its operating profits slumped 55 percent year-on-year to 340.8 billion won, and sales fell 17 percent to 13.905 trillion won.
In the years after the 2009 financial crisis, Korean steelmakers have been struggling with an oversupply, largely from China, and stiffer competition from their Chinese rivals that flooded the market with large quantities of cheap products.
For the first time in its history, POSCO swung to a net loss of 96.18 billion won last year from a net profit of 556.6 billion won a year earlier. Operating profit plunged 25 percent year-on-year to 2.41 trillion won from 3.21 trillion won during the same period. Sales were down 11 percent to 58.192 trillion won.
"The won's weakness against the U.S. dollar led to heavy dollar-denominated debts last year. As POSCO imports most raw materials such as coal and iron ore, a weak won pushed up its costs and dollar debts," the company said in a regulatory filing.
This year, POSCO aims for 58.7 trillion won in sales with a capital expenditure worth 2.8 trillion won, up from last year's 2.5 trillion won.
POSCO was trading 1.3 percent lower at 194,000 won on profit taking as of 11:29 a.m. Friday. Brokerages put the 12-month target price for the company at between 200,000 won and 280,000 won.
