Posco (SEO:A005490)

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Posco(SEO:A005490) is the world's third largest Korean steel manufacturing company with 39,648 employees. In Korea, POSCO's market share is slightly different in individual markets (hot-rolled steel, cold-rolled steel, plate) but already take up a matchless market position with over 60% market share. Posco is located in Po-hang in Korea and thanks to Posco's growth, Po-hang is famous for steel related industry. Except Po-hang in Korea, Posco has the affiliates in other countries such as China, Japan, America, Canada, India and Vietnam.

Posco was established in 1968 as public enterprise[1]. Through outside director system in 1997, Posco finally became a privatization company in 2000. Moreover Posco was listed in NYSE in 1994, LSE in 1995 and TSE in 2005.

In 2009, Posco produced 31.1 millions of tonnes in the global steel market. Moreover by volume,Posco is the third largest steel manufacturing company in the global market. Posco recorded sales of $24.5 billion in 2009.

Because raw materials like Iron ore and coking coal, take large part of Posco's product's price, Posco's products are influenced heavily by variation in a resource's price. Increasing demands of steel in emerging economics made rapid growth in steel market and gave chance to bigger the profit to steel companies including Posco.

Sudden unexpected occurring like Japan's massive earthquake can influence heavily to steel demand for Posco This is because, In the case of Japan's massive earthquake.

Business Overview

Business and Financial Metrics

Posco makes profit from three big products. In FY2010, cold-rolled steel occupied 40% of Posco's sales, followed by 25% of hot-rolled steel and plate took 15% of company's sales. Posco's products are mostly used for ship-making, car-manufacturing and building.

  • Yearly

Posco recorded decrease of 12% in sales of 2009's $24.5 billion. This is compare to 2008's $27.8 billion, decrease of 27.5% in net profit from 2008's $4 billion to $2.9 billion of 2009.

  • Quarterly

Posco posted sales of $7.7 billion for Q4 FY2010 with increase of 7.5% as compare to sales of $7.2 billion for the previous quarter. Fourth quarter net profit decreased 12.8% when compared to last quarter’s profit. net profit of Q2 FY2010 was $1.08 billion but in Q3 FY2010’s net profit was declined to $0.94 billion.

Posco explained this decrease due to the global recession caused drop in steel demand.

Annual Financial Data, in billions FY2007 FY2008 FY2009
Sales$20.1 $27.8 $24.5
Net Profit$3.3 $4.0 $2.9
Operating profit$3.34 $5.94 $2.86

Business Segments

Posco breaks its manufacture line into four main segments:

  • Hot-rolled steel which is generally used in steel products, bridges, ships, automobiles was in charge of 34.4% of the 2009’s sales volume.
  • Cold-rolled steel which is used in general applications, particular in drums, furniture and automobile parts such as roofs, fenders and ETC was taking 31% of the 2009’s sales volume.
  • Plate which is Widely used in Ship building was occupying 15.7% of the 2009’s sales volume.
  • Other is supporting 18.9% of the 2009’s sales volume (Including wire rod, Electrical steel, Stainless steel, other).
Sustainability Report FY2007 FY2008 FY2009
Hot-rolled steel34.6% 34.4% 33.4%
Cold-rolled Steel32.4% 33.4% 31%
Plate12.9% 14.7% 15.7%
Other20.1% 16.6% 19.9%

Trends and Forces

Growth of Emerging Economies

Steel, like all other products, is affected by changes in demand, economic expansion and recession. During the economic recession period, like in 2008, demands for steel products and profit of steel companies decreased. On the contrary, during economic expansion, high demand of steel product brings a lot of profit to steel companies. Recently, growing economies in BRICs countries (especially China and India) brought high demand and this trend is expected to be last longer.

Price Variations in Raw Material prices

China will import increased amount of Iron ore and also price of coking coal is expected to go up due to BRICs' increased importing amount. Since costs of raw materials are in charge of 66% of steel price, steel company's profit and prices of products are highly influenced by price variations in raw materials.

  1. If Steel Companies raise product's price, then demand will decrease due to high price, so for companies, will have less chance to make profits.
  2. If Steel Companies do not raise product's price, then steel companies hardly make profit from their products, for this reason, companies no longer maintain their companies in steel Industry.

Effect of Japan's Massive Earthquake

A lot of steel companies in Japan were in Fukushima, a region that was damaged by the earthquake. During restoration work for earthquake,high demand of steel is expected. Moreover due to the short supply of domestic steel companies, constructing and car manufacturing companies will consume territorially close country's products such as Posco in Korea or Boasteel in China.

Competition

Posco's major competitors are other steel manufacturing companies. Especially Nippon steel which produced little more than Posco, and the largest manufacturer Arcelor Mittal (MT).

  • Arcelor Mittal is the largest steel company in the world, with over 281,000 employees in more than sixty countries, revenues of US$105.2 billion in 2007, representing around 10% of world steel output.
  • Nippon steel is the world's second-largest steel producer in volume and the second most profitable steel company in the world with 50,077 employees.
  • Baosteel is the largest steel producer in China with 108,914 employees, is the third-largest steel producer in the world, revenues of $21.5 billion and a mix of high-quality products.


Revenue Produce
Arcelor Mittal$78.03 billion 77.5 million tons
Nippon steel$36.4 billion 31.3 million tons
Baosteel$21.7 billion 26.5 million tons


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References

  1. History of Posco
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