S. Korean steel giant scraps Indonesian facility expansion
S. Korean steel giant scraps Indonesian facility expansion
SEOUL (AFP): South Korean steel giant Pohang Iron and Steel Co. (POSCO) on Monday unveiled a drastic cut in facilities at home and abroad to bolster its competitive edge.
POSCO, the world's second largest steel producer, said it had scrapped joint-venture projects in Indonesia and China, along with a plan to build new steel mills in South Korea.
"Drastic and consistent restructuring is needed to reduce cost and enhance competitiveness," a POSCO spokesman said.
The company also decided to sell its joint-venture steel plant under construction in Venezuela, he said.
"Construction of the US$330 million plant in Venezuela will be completed in June to produce 1.5 million tons of hot briquette iron a year," he said.
In Indonesia, POSCO earmarked $84 million to build a joint- venture steel plant, but an economic meltdown there has delayed construction, he said.
"We also decided to cancel projects for tin plate and galvanized steel plants in China, where POSCO has already secured a network of production and sales," he said.
POSCO officials worry that they may suffer enormous losses in China if the country plunges into crisis. China is one of POSCO's major clients.
They conceded that POSCO became more vulnerable to crisis because of its over-grown facilities at home and abroad.
"By eliminating the bubble, the company will remain profitable under any circumstances," the POSCO spokesman said.
Domestic steel demand fell 35 percent last year, forcing POSCO to reduce production at 25.6 million tons last year. POSCO has been the backbone of South Korea's industry, cornering some 70 percent of domestic demand.
The company posted a record net profit of 1.1 trillion won ($932 million) on sales of 11.1 trillion won last year, mainly due to exchange rate gains.
POSCO's 1998 profit was up 51 percent from 728.9 billion won a year ago, helped by brisk exports estimated at $2.7 billion last year.
The company saved 237.7 billion won in capital expenditure last year by scrapping facility construction and reducing inventory. It also cut financial costs by 41.4 billion won by reducing borrowings.
As a result, POSCO said its debt-to-equity ratio stood at 114 percent at the end of last year, down from 141 percent a year ago.
The company plans to cut its production further this year at 24 million tons, based on predictions that the global steel market would remain weak.