POSCO <005490.KS>, the world's third-biggest steelmaker and backed by billionaire investor Warren Buffett, cut its 2011 investment plan and painted an uncertain outlook after posting a consensus-meeting profit for the third quarter.
The outlook for the South Korean firm and other steel companies is dim despite recently softening prices of raw materials such as iron ore and coking coal as weakness in developed economies and tight credit conditions in China are expected to weigh on steel prices.
The weak won is also set to increase costs of imported raw materials for South Korean steelmakers in the fourth quarter.
The won, one of the region's most vulnerable currencies to global turmoil, lost more than 9 percent against the dollar in the third quarter and is widely expected to remain under pressure over the coming months as global economic jitters dampen investor appetite for riskier assets.
POSCO is the first big Asian steelmaker to report earnings for the September quarter. Competitors in Japan and China report next week.
POSCO said it had slashed its 2011 investment plan to 6 trillion won from the previous 7.3 trillion won. It also raised its cost-cutting target to 1.4 trillion won for this year, from the previous 1 trillion won.
We expect the business environment to remain uncertain in the fourth quarter, POSCO said in a statement.
POSCO posted a 5.9 percent rise in profit for the third quarter, meeting consensus, thanks to higher sales volume and prices.
The company, which trails ArcelorMittal
The profit was up from 1.03 trillion won a year ago thanks to higher sales volume and prices, but down from 1.5 trillion won in the previous quarter because of higher raw material costs, POSCO said.
Shares in POSCO, in which Buffett's Berkshire Hathaway
POSCO shares ended up 0.28 percent in a broader market <.KS11> up 1.84 percent on Friday. ($1 = 1145.200 Korean Won)
(Reporting by Hyunjoo Jin; Editing by Muralikumar Anantharaman and Jonathan Hopfner)