After Q1 profit jump, POSCO says rivals' exports to squeeze steel prices

SEOUL (Reuters) - After its first-quarter profit jumped 20 percent on lower iron ore costs, South Korean steelmaker POSCO warned the current quarter will be tough as Chinese and Russian rivals flood the regional steel market amid weak domestic sales.

The world's sixth-biggest steelmaker said on Tuesday operating profit in the January to March quarter was 622 billion won ($574 million) on a parent-only basis, above a consensus forecast of 602 billion won compiled by Thomson Reuters I/B/E/S. A year earlier operating profit was 518 billion won.

But POSCO expects exports from mills in China and Russia to grow this quarter as growth falters in those economics, putting pressure on prices in the region as a whole. In China alone, the world's top steel consuming economy grew at its slowest annual pace in six years at the start of 2015.

"China's steel consumption has fallen more than its output decline, boosting exports sharply (as steelmakers seek sales elsewhere). We expect the export pressure to grow going forward," Son Chang-whan, executive vice president at POSCO, said in an earnings conference call.

For January-March, lower iron ore input costs more than offset the impact of weaker steel prices. Benchmark prices of iron ore, a key ingredient in steelmaking, slid in the first quarter, dropping nearly a third this year to hit their lowest levels since at least October 2008.

POSCO said it expects iron ore prices to remain weak in the second quarter as China's steel industry downturn persists and major suppliers continue to boost output to try to hang on to market share despite a mounting supply glut.

POSCO said first-quarter revenue fell 8 percent in the quarter to 6.79 trillion won. Chronic overcapacity has also capped price rises of the alloy, sold for mass production in the automobile, shipbuilding, construction and home appliance sectors.

The average selling price of POSCO's carbon steel was 670,000 won per tonne in the first quarter, down 11 percent from a year earlier, according to POSCO's statement.

"We don't expect the steel market to improve much in the second quarter from the first quarter," Noh Min-yong, senior vice president, said in the conference call.

Shares in POSCO ended up 0.8 percent in Seoul, before the earnings were disclosed, versus the flat broader market. After declining for a fifth consecutive year in 2014, POSCO shares have extended losses this year, dropping 8 percent versus the market's 12 percent rise.

($1 = 1,082.9200 won)

(Additional reporting by Sohee Kim; Editing by Kenneth Maxwell)