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Posco aims for profit despite output cuts

Posco aims for profit despite output cuts

Seoul: Recently appointed Posco ceo Chung Joon Yang has stated that the steel producer is "confident" of turning a profit "with only 2m tons of output cuts," (i.e. a 6% reduction to the previous year's production) and is considering mergers and acquisitions.

The South Korea-based company said today it will cut output by as much as 800,000 metric tons between January and March, Bloomberg writes. Posco slashed production in December for the first time in its 40-year history, joining moves by ArcelorMittal and Nippon Steel Corp., the world's biggest steelmakers, as the global recession crimped demand. The slowdown and tumbling values may present acquisition opportunities for Posco, Chung is reported as saying.

"At this time of economic recession, the cost to buy a steel company can come down to below $1,000 per ton, so we are positively considering M&As," the newswire reports Chung saying at a press conference. "What we fear the most is the industry slump may last for the next two to three years. Then, we'll have to cut output by 30%."

However, Posco may carry out output cuts if the slump continues after June. Chung said, "Global steelmakers need to cut output together to reduce inventories, and thus help the industry recover quickly."

Chung's comments echo concern by UBS AG that steelmakers may have raised output too quickly in January in response to a bounce in Chinese demand. Global output rose 5% in January from the previous month, the first gain since April, UBS said Feb. 23.

Posco, which has dismissed rumours of another attempt for a controlling stake in DSME,  is expected to go ahead with $17bn worth of investments in India and Vietnam. "We are also considering so-called brown-field projects that include joint ventures where necessary infrastructures are well in place," Chung said.  [27/02/09]

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