South Korea's top steelmaker POSCO posted an 8.6 percent fall in its third-quarter profit Tuesday on higher costs and weak overseas demand, and offered a downbeat earnings outlook for the next quarter.
Net profit reached 1.04 trillion won (US$919 million) in the July-September period, compared with a profit of 1.14 trillion won a year earlier, the company said in a regulatory filing.
Sales increased 24.4 percent to 8.52 trillion won over the cited period, and operating income gained 9.1 percent to 1.11 trillion won, it said.
Shares of POSCO closed at 519,000 won on the Seoul bourse, down 2.26 percent. The third-quarter business results were released after the market closed.
"Costs of iron ore and other materials increased sharply, but such gains were not fully reflected on product prices," the company said in a statement.
Compared to the previous quarter, the third-quarter earnings were down 12.7 percent.
In April, POSCO increased prices for key products by as much as 25 percent, citing a jump in prices of imported iron ores and coal. In July, the steelmaker conducted its latest price hikes.
Its crude steel production increased 4.2 percent to 8.21 million tons in the third quarter from a year earlier, and sales of steel products gained 2.8 percent to 7.74 million tons.
POSCO, however, cut its sales target for the year to 32.9 trillion won from an earlier 33.5 trillion won, citing weak overseas demand. The steelmaker said it aims to generate an operating income of 5.2 trillion won this year, also down from the previous target of 5.6 trillion won.
POSCO said it is still in talks for coal contract prices for the fourth quarter, but contract prices of iron ore for the fourth quarter are up to 13 percent lower than in the previous quarter.
"But higher material costs will continue to weigh down profitability," said a company official. "Our profit will improve from the first quarter of next year in line with falls in costs of raw materials."
The world's No. 3 steelmaker may report a further drop in the fourth quarter on higher materials costs, analysts said. Previous price hikes this year were not enough to cover expensive raw materials costs, they said.
"POSCO's profit is expected to get better next year as raw materials prices will be reflected from December," said Park Ki-hyun, an analyst at Tong Yang Investment Banking Corp.
The steelmaker expects export prices of steel products to average $802 per ton in the second half of the year, lower than $819 per ton during the first half.
The company said it plans to increase spending on facility investment and acquisitions to 10.4 trillion won this year.