S&P: Korean steelmakers'shift positive

Standard & Poor's said in a report that the global steel market has been upset by China's shift from its initial position as a steel importer to a net exporter of steel.

This coupled with the fact that steelmakers have not easily been able to raise prices despite the persistent high cost of raw materials, makes it all the more noteworthy that Japanese steelmaking companies were able to increase the stability of their revenue bases through shuffling and enhancing their product mixes over the past several years, the agency noted.

S&P said it believes that each of the steelmakers will generally be able to achieve the profit targets they have set for fiscal 2007 ending March 31, 2008, noting that this is dependant, however, on the companies not making significant changes to their strategies of strengthening their high-quality steel segments, as demand remains vigorous for such products from the steelmakers' main customers, mostly automotive and ship building companies.

In Korea, many iron and steelmakers' profitability, including that of Posco (A/stable), shrunk due to the 55% year-on-year increase in steel imports from China, which reached 10.3 million tons in 2006, according to the report.

Notwithstanding this, most of the steel made in China is comparatively low quality consisting of commodity products and hot rolls for downstream lines, the agency said.

For this reason, the impact on Posco's revenue has been relatively limited, as the company has been focusing on high-end steel, S&P said, adding that Posco has shifted its product mix to lift the sales percentage of its eight high-end strategic steel products to 51% in 2006 from 37% in 2004.

Furthermore, the company plans to push this ratio to 80% by 2008 through continuing to shift its product mix, the agency noted.

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