Posco Boosts Target on Steel Demand

The South Korea steelmaker ups its outlook, as it expects a further increase in demand for steel.
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NEW YORK (TheStreet) -- World's fourth-largest steel company Posco (PKX) - Get Report reported Tuesday that net income for the first quarter ended March 31, 2010, more than quadrupled from a year earlier.

Net income for the first quarter surged to 1.44 trillion won ($1.3 billion) from 325 billion won reported a year earlier, beating the 1.22 trillion won consensus estimate of 19 analysts polled by

Bloomberg

. Meanwhile, sales rose to 6.95 trillion won from 6.47 trillion won reported a year earlier.

Shares of Posco, South Korea's second largest company by market capitalization after

Samsung Electronics

, declined 1.28% Tuesday on the South Korean markets prior to the earnings announcement.

Currently Posco shares are trading down $2.04, or 1.68%, to $119.23 on the

NYSE

. Most of the steel majors are trading down in the U.S. markets.

Robust demand, especially from carmakers and home appliance firms, helped steel prices remain high during the quarter. According to

Bloomberg

, Posco gets 70% of its sales from South Korea, home country for automobile majors such as

Hyundai Motors

and

Kia Motors

. Posco sells steel to these carmakers, which have registered a ninth consecutive increase in monthly car sales. More recently, in March, car sales at Hyundai and Kia increased by 36% and 55%, respectively.

Anticipating further increase in demand for steel, Posco raised its steel output target by 0.3% to 34.5 million tons. The company lifted its sales target by 8.1% to 31.9 trillion won, foreseeing higher steel prices and demand.

Maintaining high steel prices is necessary for the company, since it has provisionally agreed with

Vale

(VALE) - Get Report

to pay 86% more for iron ore for the quarter started this month. In addition, Posco agreed for a 55% hike in coking coal prices for this quarter.

Concerns of higher raw material costs for the company led a recent decline in the company's stock price. At the current stock price, the stock is trading an attractive P/E of 11.8, the lowest among U.S.-listed steel producers.