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17. October 2007

Steeling itself for loss

POSCO, Asia's biggest steelmaker by market value, reported a surprise drop in third-quarter profit because of higher iron ore costs and reduced stainless steel production.

Net income fell to 871 billion won (US$949 million) in the three months ended September 30 from 882 billion won a year earlier, the Pohang, South Korea-based company said yesterday.

The median estimate of seven analysts surveyed by Bloomberg was for a 5.7 percent increase.

Posco this month raised prices to pass on the higher costs amid rising demand from China, the world's biggest steel user. The company and its rivals may pay as much as 50 percent more for iron ore next year, Macquarie Bank said, after a 9.5 percent rise this year.

"Rising iron-ore prices will drive up prices of steel products, boosting earnings of Posco into the first half of 2008," said Chung Ji Yun, an analyst with CJ Investment & Securities, before the earnings announcement.

The steelmaker expects only a "limited increase" in nickel prices into the first-half of 2008, Chief Financial Officer Lee Dong Hee said yesterday.Prices for hot-rolled coil steel in Korea rose 7 percent in the quarter, while Chinese hot-rolled coil, a regional benchmark, gained 20 percent, Chung said. Posco said it would increase the price of steel plates used to make ships by 9.9 percent to 665,000 won a ton.

Yang Haeman, who helps manage US$800 million in global stocks at Seoul-based NH-CA Asset Management Co, said: "As China's economy grows, its appetite for materials will continuously increase."

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