Oct 27, 2011 (Bloomberg) -- Hyundai Steel Co. (004020), South Korea’s second-biggest steelmaker, swung to a net loss in the third quarter from a year ago because of a weaker Korean won and decreased demand from builders.
Net loss was 127.1 billion won ($114 million) in the three months ended Sept. 30 from a revised 232.2 billion won profit a year earlier, the Incheon-based company said today in a filing. Hyundai today cut its sales estimate for this year to 15.5 trillion won from a previous target of 15.7 trillion won.
Falling steel prices are starting to squeeze the profits of steelmakers as a slowing global economy cuts demand for the alloy used in ships, cars and houses. Hyundai Steel’s bigger local rival Posco (005490) last week said it will cut spending and reduce costs after reporting a 75 percent slump in profit.
"Demand is slow across all steel products, except those used in autos,” Park Kee Hyun, a steel analyst at Tong Yang Securities Inc., wrote in a report dated Oct. 18. “The won’s sharp depreciation is another burden for Korean steel mills in their efforts to defend margins.”
Hyundai Steel probably expanded price discounts to domestic customers by about 10,000 won a metric ton in September, Park wrote. A drop of 10 won against the U.S. dollar reduces Hyundai Steel’s operating profit by 25 billion won, he wrote.
Hyundai Steel incurred about 397.2 billion won of foreign- exchange losses in the quarter, the company said today. The Korean won dropped 9.7 percent in the quarter, becoming Asia’s worst-performing currency. A weaker won increases the cost of Korean mills’ foreign-currency debts and import costs of raw materials such as iron ore and coal.
Hyundai Steel climbed 10 percent to close at 102,500 won today in Seoul. The stock has lost 18 percent this year, compared with a 6.3 percent decline in the local benchmark Kospi stock index. The earnings were announced after the market closed.
Operating profit increased 44 percent to 287 billion won in the July-to-September quarter, the company said. Sales rose 45 percent to 3.76 trillion won.
Fourth-quarter profit may rebound on seasonal demand for long steel, or steel used in construction, analyst Sungmee Park at Citigroup Global Markets wrote in an Oct. 13 report.