Posted : 2013-01-27 19:35
Updated : 2013-01-27 19:35

POSCO eyes bright future beyond crisis

POSCO Chairman
Chung Joon-yang
POSCO's head office in Seoul
By Lee Hyo-sik

POSCO, the world's fourth largest steelmaker, has been weathering the ongoing global steel industry slump better than its larger rivals overseas, thanks to its aggressive cost-cutting measures and valued-added product portfolios.

It is also the most valued steelmaker in terms of market capitalization, outpacing ArcelorMittal, Nippon Steel & Sumitomo and JFE Steel.

The company has been focusing on auto steel plates and other high-valued products to boost its bottom line when Chinese steelmakers flooded the global market with low-quality, low-value goods.

Against shrinking steel demand, surging raw material prices and other unfavorable business conditions, the steelmaker has been in emergency mode over the past few years implementing a wide range of cost-saving measures.

POSCO has sold non-essential affiliates, cutting the number of its business units to 46 from the previous 70. Through the structural reorganization, it seeks to create greater synergy among affiliates and become a comprehensive energy & material enterprise.

Korea's largest steel producer has been rated the world's most competitive and profitable steelmaker. As of Jan. 24, POSCO's market capitalization reached $29.9 billion, higher than ArcelorMittal's $27.6 billion and Nippon Steel & Sumitomo's $24.2 billion.

POSCO is capable of producing 40 million tons of steel products annually, smaller than ArcelorMittal's 100 million tons and Nippon Steel & Sumitomo's 50 million tons.

''Despite our smaller production capacity, our market value is higher than those of our larger competitors. This means we are more competitive and profitable,'' a POSCO spokesman said. ''We posted an 8.3-percent operating profit to sales ratio for the first nine months of 2012, much higher than 2.6 percent for ArcelorMittal. Nippon Steel & Sumitomo even lost money.''

The company attributes its better bottom line to its valued-added product portfolio.

''We have been focusing on auto steel plates and other products used for offshore plants and other energy industry infrastructures. We generated nearly 20 percent of our revenue from these high value-added goods in the fourth quarter of 2012, up two-fold from a year earlier,'' the spokesman said.

POSCO plans to churn out more differentiated, high-quality steels to more effectively cope with the ongoing global supply glut caused by the Chinese firms, and further widen a gap in profitability with its larger rivals.

''We have also been running a crisis management system over the past year to overcome the ongoing industry slump. We have introduced an array of steps to cut costs, improve product quality, develop new technologies and create greater synergy among our business units,'' he said.

Focusing on material & energy business

In order to achieve a sustainable growth in the future, the steelmaker has been paying a great deal of attention to nurturing new growth engines.

Chairman Chung Joon-yang has often said POSCO will become a comprehensive material & energy enterprise to differentiate itself from other steelmakers when the global steel sector has increasingly turned into the red ocean.

''We have accumulated technological know-how and experiences in steel and other raw materials over the past 40 years. We also have highly-talented research personnel at POSTEC and other institutes. We are well-positioned to be successful in this highly profitable business,'' the spokesman said.

The company's such efforts have begun bearing fruit. It began operating a magnesium smelting factory in Gangwon Province in November to secure a stable supply of the metal key to its business.

In April, POSCO signed an agreement with LG Chem to supply a wide range of base materials for the latter's production of batteries.

The steelmaker has also been making rapid strides in the energy sector. Its affiliate POSCO Energy, the country's largest private power generator, has won multiple contracts both at home and abroad to build coal and solar power plants over the past year.

The steelmaker has signed a strategic cooperation agreement with General Electric to provide next-generation materials for the latter's energy and infrastructure businesses.

It also signed with Siemens to supply reinforced steel and other new materials for the German firm's renewable energy businesses. Shell has also been buying thick steel plates from POSCO for constructing its offshore structures.

The steelmaker has also been operating a support program for local start-up firms since 2011 to join the nationwide job creation campaign. It has offered a total of 4.2 billion won to 22 ventures. The companies increased the number of their employees by 15.2 percent after they had received financial aid.

''We are operating the 'POSCO Venture Partners'' program in order to financially help start-ups with ideas but short of cash. We have offered funds to 22 companies so far. We will continue to nurture promising venture firms to help them flourish and create jobs,'' the spokesman said.

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