SEOUL, Feb 3 (Reuters) - Korea's POSCO, the world's third-biggest steelmaker, reported a smaller-than-expected 33 percent gain in quarterly profit on Friday, but outperformed its Asian peers in a sector buffeted by the euro zone crisis and China's slowing growth.
The company, in which billionaire investor Warren Buffett's Berkshire Hathaway owns a stake of around 5 percent, managed to increase profits while Japanese steelmakers Nippon Steel and JFE Holdings suffered profit slumps and slashed their profit outlooks.
Weak demand from shipbuilders and repercussions from Europe spell a grim outlook for the sector, though any steps by biggest consumer China to boost domestic consumption would offer a ray of hope.
"While many steelmakers cut production, POSCO achieved its record-high production and sales last year, and maintained the highest level of profitability in the industry," Chief Executive Chung Joon-yang told an earnings conference.
But he sketched a bleak outlook, saying the current quarter would be the company's "most difficult" earnings period, although results would improve in the second quarter, helped by the United States and China.
POSCO said its October-December operating profit was 692 billion won ($619 million), up from 519 billion won a year earlier, but well below a consensus forecast of 839.3 billion won from Thomson Reuters I/B/E/S.
Fourth-quarter sales rose to 10 trillion won from 9.2 trillion won a year earlier.
POSCO posted a 4.2 trillion won operating profit for all of 2011, down 12 percent from a year ago. Sales rose 20 percent to 39.17 trillion won last year.
POSCO, which expects to go ahead with one of the firm's three steel mill projects in India this year, said raw material costs increased more than 40 percent last year.
The slowing global economy weighed on demand, especially from shipbuilders, keeping it from fully passing on the higher input costs to customers.
The firm cut its planned investment this year to between 4.5 trillion and 5.1 trillion won from 5.7 trillion won last year, while forecasting 2012 sales at between 37.7 trillion won and 41.2 trillion won.
"I am worried about the health of the industry as a whole as euro zone problems remain. POSCO is the best in terms of profit in the industry, but this year will be a difficult year even for POSCO," said Lee Dong-jin, a fund manager at KTB Asset Management, which owns POSCO shares.
CHANCE OF CHINA MEASURES
Worldwide, crude steel production hit a record 1.527 billion tonnes in 2011, but the pace of growth fell sharply as Europe's sovereign debt crisis and slowing economic growth in top consumer China dented demand. Output grew 6.8 percent in 2011, down from 15 percent in 2010, the World Steel Association says.
"Overall the steel industry is going through oversupply while most of the infrastructure projects in China are being finished, resulting in sluggish demand," said Baik Jae-yer, a fund manager at Korea Investment Management in Seoul.
"It is true that steelmakers are in difficult situation. However, the global economy won't be so bad as we thought. There are hopes that China can soften its tightening moves."
Liquidity in the Chinese market was better than last year and there was more confidence about restocking, analyst Helen Lau of UOB Kay Hian in Hong Kong told Reuters.
"The subsidy programme for autos is likely to be resumed and while the commercial property sector will keep tightening it won't affect the construction of affordable housing, where loans doubled in 2011."
"Chinese steel mills will perform better than in Korea because I don't see any specific (support) measures like the ones we see from China," she added.
Crude steel output in China and South Korea surged by 66 million tonnes, or nearly 10 percent, to 764 million tonnes in 2011, World Steel Association data shows. Most of that was funneled to the export market.
Still, China's crude steel output rose at a slower pace in 2011 as tighter credit dented consumption in the world's top steel market.
The world's second-largest steelmaker, Baoshan Iron & Steel Co Ltd (Baosteel), which is due to report in late March, unveiled preliminary figures last month showing its 2011 net profit fell 43.4 percent to 7.3 billion yuan ($1.2 billion).
JAPAN FIRM CUTS PROFIT OUTLOOK
This week, the world's fifth-biggest steelmaker, Japan's JFE Holdings Inc, said a supply glut in Asia, the strong yen and a one-off loss would push it to its first-ever net loss in the year to March 31, after quarterly profit fell 76 percent.
Bigger rival Nippon Steel Corp, the world's fourth-largest steelmaker, announced a fall of 44 percent in quarterly profit and slashed its full-year outlook by a third to 120 billion yen.
Analysts expect the world's No.7 steelmaker, India's Tata Steel, which reports on Feb. 9, to suffer a two-thirds fall in profit because of higher costs and lower prices in Europe, where it operates most of its global capacity.
Prior to Friday's earnings news, shares in POSCO, which trails ArcelorMittal and China's Baosteel in steel production, ended down 0.36 percent in a wider market that fell 0.6 percent.