POSCO Progress on Chile Project - Analyst Blog

POSCO (PKX) recently announced the successful completion of Plant 1 synchronization of the Angamos coal fired plant (capacity 520 MW) by POSCO E&C. Synchronization involves delivery and connection of the existing power with the existing system through transmission lines.

The Angamos plant, currently under construction in Chile, is POSCO E&C's second overseas construction project after the Ventanas power plant and involves construction of two plants each with 260 MW capacities. The order was provided by the AES Group, primarily to supply electricity to the BHP coal mine area in northern Chile.

Following the synchronization process, the Plant 1 will undergo safety, reliability and performance assurance testing before it is launched for commercial operation in April 2011. The other plant is expected to come online by October 2011.

POSCO is the world's third largest steelmaker on the basis of output. We believe the company remains well positioned to benefit from wide regional diversification with its growing presence in the international markets through investments in Australia, China, India, Indonesia and Brazil. Also, the outlook for global steel market is promising with an expected surge in demand by 13.1% in 2010 and 5.3% in 2011, according to the World Steel Association.

In addition, higher proportion of value-added products (such as cold-rolled steel, automotive steel plates and electric steel sheets) in the company's product mix is a boost to revenue and earnings growth as these products attract better realizations and margins over commodity hot-rolled coils.

Recently, POSCO got approvals from the company's board of directors to establish a stainless steel cold-rolling mill with annual capacity of 200,000 ton in Turkey.  Construction is expected to begin in 2011 and consummate by 2013.

We currently maintain an Outperform recommendation on the stock.