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POSCO's Second-Quarter Profit Soars 55%, Outlook Is Steady

South Korea's POSCO topped expectations with a 55% jump in quarterly profit on Monday, bolstered by strong demand for steel, but forecast modest growth for the rest of the year.

POSCO earned a net profit of 1.11 trillion won (US$1.21 billion) for the three months to June 30, against a 716 billion a year ago. The result was above a consensus forecast of 941 billion won by seven analysts surveyed by Reuters.

Sales were 5.82 trillion won against 4.67 trillion a year ago.

"The earnings look good, but I feel that they may mark the peak for POSCO," said Kim Yung-min, fund manager at Jeil Mutual Savings Bank. "It may be good to take profits in POSCO now."

POSCO raised its 2007 operating profit forecast to 4.6 trillion won from 4.3 trillion previously, and its 2007 sales forecast to 22.7 trillion won from 22.6 trillion, thanks to expectations of continued robust demand for steel and stable prices. It posted 3.9 trillion won in operating profit and 20 trillion won in sales in 2006.

But analysts warned earnings momentum could slow after a string of steep run-ups since late 2006.

Stainless Steel Cools

POSCO said it would cut stainless steel output by 100,000 tons in the second half due to slower demand, on top of a 500,000-ton cut in crude steel output due to planned maintenance in the third quarter.

But the company downplayed any effect on earnings. "The two issues will not hurt the company's earnings a great deal, and POSCO's earnings will be steady," said Lee Dong-hee, POSCO's chief financial officer.

He added that stainless steel doesn't represent a significant portion of total earnings. Stainless steel accounts for 25% of total revenue and only 8% of net profit.

China's Baoshan Iron and Steel said in May that it would leave prices unchanged for its major steel products for the third quarter, which could help keep global steel prices steady.

POSCO said it expected global steel prices to rebound in the fourth quarter after a slight fall in the third quarter.

POSCO has suffered from falling demand for stainless steel since last month as customers have delayed orders, anticipating further price drops on the back of tumbling nickel prices, a key input in the alloy.

Shares Rally

Reflecting the strong earnings outlook, shares in POSCO , South Korea's second-largest company with a market value of $53 billion, hit a record high of 579,000 won on Monday before ending 0.9% lower. The results were announced after the market had closed.

POSCO shares had surged nearly 10% on Friday on expectations it would report strong quarterly numbers.

The stock gained 12.3% in the second quarter, compared with a 20% rise in the KOSPI. But POSCO has surged 80% this year so far, compared with a 35.9% gain in the KOSPI.

"I'm concerned about what POSCO's shares will face when the global stock market experiences a big correction," Chung Kyun-sik, chief investment officer at Eastar Investment Advisors.

POSCO also said it expected its $12 billion Indian project to get back on track soon. "We will finish the job of securing land by the end of this year and start construction early next year," the company said.

POSCO's proposed steel complex in Orissa, which would be India's largest foreign direct investment project, has run into trouble after residents protested state plans to buy their land for the plant.

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