POSCO Out with AAPC Wing - Analyst Blog

POSCO (PKX) completed its US$19 million automotive Alabama Automotive Steel Sheet Processing Center, located in the Jefferson County Industrial Complex near Birmingham, Alabama.

 

The POSCO-AAPC together now has the potential of processing 120,000 tons of steel materials annually. The center will cater to sales service activities of global automobile manufacturers of Japan and Europe apart from its electrical steel sheet clients.

 

POSCO, currently with POSCO-AAPC fully operational, intends to become a major steel sheet supplier to automobile manufacturers located in the southeast region of the U.S. The company is hopeful about the demand for steel materials getting a boost from the global automobile players like Mercedes Benz, Volkswagen, Honda, Nissan, and Hyundai Kia, besides parts companies such as Bosch, Benteler, Lear along with 400 other parts companies.

 

POSCO is the largest steel producer in Korea, primarily manufacturing steel for the shipping and construction industries. We believe the company remains well positioned to benefit from a wide regional diversification and higher proportion of value-added products in its product mix over the longer term.

 

POSCO expects global steel demand to grow 12% in 2010 in the wake of continued economic recovery with domestic demand rising 16%.

 

However, rising competition, especially from its Chinese counterparts, is playing the spoil-sport, threatening aggressive price competition and affecting margins and revenues. Besides, gains/losses from volatility in foreign currency and the cyclical nature of the industry remain a cause of concern.

 

But POSCO's expansion into international markets through investments in Australia, China, India, Indonesia and Brazil is encouraging and expected to promote growth, going forward. We currently maintain a Neutral recommendation on the stock, supported by Zacks #3 (Hold) Rank.