Posco says Q1 profit doubled, but braces for coking coal cost hit from Cyclone Debbie

Posted on 19 April 2017

Source: Reuters

South Korean steelmaker Posco said first-quarter profit more than doubled, beating its estimate on solid demand from China, but warned coking coal may now cost up to a third more than forecast because of price surges post-Cyclone Debbie.

The world's fourth largest steelmaker said on Tuesday it has suspended negotiations on contract benchmark prices for coking coal - a vital raw ingredient in steelmaking - due to a hike in spot prices since the end-March cyclone lashed Queensland, the world's largest coking coal export region.

Posco said in a statement that first-quarter operating profit was 1.37 trillion won (US$1.20 billion), surpassing a preliminary estimate of 1.2 trillion won, as well as 659.8 billion won a year ago.

But the firm said it now expects contract benchmark prices for coking coal to reach more than US$200 a tonne in the second quarter. Before Cyclone Debbie hit, Posco had forecast contract benchmark prices would be about US$150-US$170 a tonne for April-June.

The price hikes raise the prospects of higher steelmaking costs than previously anticipated. Posco, which doesn't typically issue full-year operating profit guidance, left its 12-month revenue forecast unchanged at 54.8 trillion won.

Cyclone Debbie led to the temporary closure of four of Australian coal railway line operator Aurizon Holdings Ltd's haulage routes in Queensland. Three of the lines have reopened already.

Meanwhile, Posco reiterated a previous forecast that China steel demand is expected to rise slightly this year, thanks to the Beijing's infrastructure investment and other policies.

China, the world's second largest economy, grew at 6.9% in the first quarter, slightly faster than expectations, supported by a government infrastructure spending spree and a frenzied housing market that boosted steel prices.

However, a record steel output and expectations that demand would slow as Beijing tries to cool its red-hot property market has hammered prices, snuffing out a months-long rally.

As of 0602 GMT, about 90 minutes after the earnings disclosure, Posco shares were up 1.9%, while the broader Seoul market was 0.2% higher. 

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