Senior Executive Vice President and CFO Park Ki-hong told reporters that he was "concerned about" the strength of the expected economic recovery in China, the world's top steel consumer and producer, after POSCO reported its second straight quarter of profit decline.

Global steel demand has been slowing, hit by weaker economic growth in China and Europe's protracted debt woes. POSCO on Tuesday cut its full-year sales outlook to 37.5 trillion won ($32.70 billion) from 37.7 trillion won.

"China's steel demand will not dramatically improve this year, as it will take time for rate cuts and more liquidity to affect the real economy," said Lee Won-jae, a steel analyst at SK Securities. "Steel prices are falling even now."

China's waning steel demand, coupled with the country's chronic oversupply, has driven Chinese exports of the metal to the highest level in more than three years, exacerbating prices in South Korea where POSCO sells 60 percent of its products.

"South Korean steelmakers including POSCO are conducting a feasibility study on whether to file anti-dumping complaints against Japanese or Chinese steel imports," said an official at the Korea Iron & Steel Association.

"It is a real headache. Oversupply is a problem facing the global steel industry, and the problem will not abate easily," the official said, declining to be identified because of the sensitivity of the matter.

The rising tide of steel exports has already precipitated a volley of complaints from other countries preparing possible trade action against China on the grounds of alleged predatory pricing.

China boosted first-half exports of the metal used in cars and construction to 27.26 million metric tonnes (30.04 million tons), the highest for a six-month period since 2008.

The average selling price of POSCO's carbon steel was 926,000 won per tonne in the April to June quarter, compared with 1.011 million won a year earlier and 930,000 won in the previous quarter.

POSCO, the first major Asian steel mill to report earnings, said second-quarter operating profit fell 29 percent from a year earlier to 1.06 trillion Korean won on a parent basis, compared with an average forecast of 1 trillion won in a Reuters poll of 21 analysts.

While profit was lower than 1.5 trillion won a year earlier, it was a sharp improvement from 422 billion won in the previous quarter, thanks to cost controls.
POSCO's dominant position in the domestic market, along with its cost competitiveness, will help the company outperform its regional peers in this earnings season.

Nippon Steel, the world's No.6 steelmaker, is forecast to report a fall in recurring profit of almost 40 percent to 35.05 billion yen ($442.5 million) for April to June.
A number of Chinese steel mills have slipped into the red in the first half or seen net profit more than halved because of tepid demand and a sharp decline in prices.

Shares in POSCO, which counts backed by billionaire investor Warren Buffett's Berkshire Hathaway as a major shareholder, have fallen 5 percent this year, compared with a 2 percent drop in the broader market."       

My Take

Supply and demand sets the market price. If there's more supply than demand, prices tend to decrease.

That's true for commodities and labor alike unless somehow unions, government or others remove competition from the market place. Which they can't realistically do when global competition is in effect.

Our union leaders don't like to acknowledge the presence of global competition, but it's real. Very real.

Either we compete or we stop playing the game.

Price, quality and cost determine who gets the order when buying steel, cars or other things. It's that simple.

Thanks. Bob.