Seoul: Posco, the world's No 3 steelmaker, posted a weaker-than-expected quarterly profit and warned it was struggling to pass on rising costs as floods in Australia disrupt raw material supplies.
South Korea's Posco is already a laggard among Asian steelmakers in terms of price increases, share price performance and profitability, and higher costs will deal it another blow as it relies heavily on imports for iron ore and coal.
"We expect rises in raw materials, but it is difficult for us to fully pass along the costs to products," Posco Chief Executive Chung Joon-yang told analysts.
The company, which counts billionaire investor Warren Buffett and Japan's Nippon Steel as major shareholders, said its contract prices of both iron ore and hard coking coal for the first quarter rose 8 per cent from the previous quarter.
Steelmakers are facing a double whammy this year with demand growth from top consumer China slowing to single-digit level and raw material costs rising due to limited supplies.
Miners in top exporter Australia, from BHP and Rio Tinto to Macarthur Coal, are either fully or partially under force majeure due to massive floods in Queensland state and some of the ports and rail lines were closed, which may disrupt supplies of ore and coal to Asia.
That should continue to strain steelmakers' margins, with the industry across Asia still reeling from a near tripling in iron ore prices last year when global miners switched to a more frequent quarterly pricing system to reflect wild swings in spot prices. Posco sources around 60 per cent of its coking coal and iron ore needs from Australia.
"Korean steelmakers lack room to raise steel prices, like their Chinese and Taiwanese peers did, because of the weaker demand from the downstream industry in the country," said Judy Chen, fund manager at Prudential Financial Securities Investment Trust in Taipei.
- 8%: rise in prices of iron ore and coking coal
- 60%: iron ore, coking coal sourced from Australia