Korean steelmaker, POSCO (PKX) reported financial results for the second quarter of 2010, with net income increasing 117.5% year over year to KRW 1,196 billion (US$1.03 billion). However, compared with first quarter 2010 results, net income plummeted 16.8% primarily due to higher foreign exchange translation loss of KRW 443 billion (US$0.38 billion). Earnings per share were KRW 13,708 (US$2.95 per ADR) in the second quarter versus KRW 4,940 (US$0.96 per ADR) in the comparable quarter of 2009.
 
Revenue
 
POSCO reported healthy top-line results, with revenue totaling KRW 7,933 billion (US$6.8 billion), up 25.0% year over year and 14.1% sequentially. The sequential growth was attributable to higher sales volume and sales price, which more than offset an 11.2% increase in raw material costs.
 
During the second quarter, POSCO produced 8.4 million tons of crude steel, up 17.3% year over year and 1.6% sequentially. Sales volume was 7.8 million tons of finished products, up 11.7% year over year and 4.8% sequentially driven by solid domestic demand and exports in emerging markets. Of the total sales, 33% was from export and 67% from domestic sales. Solid growth was seen across all product categories, except for Plate and Wire Rod due to scheduled maintenances.
 
Margins
 
As a percentage of revenue, cost of goods sold decreased to 72.3% from 74.2% in the first quarter of 2010. EBITDA in the second quarter was KRW 2,378 billion (US$2.05 billion), or 30% of revenue versus KRW 1,986 billion (US$1.75 billion), or 29% of revenue in the first quarter 2010. Operating margin was 23.1% versus 20.8% in the first quarter. Interest expense was KRW 9 billion (US$0.01 billion), up from KRW 1 billion (US$0.88 million) in the first quarter due to a rise in the company’s debt level.
 
Balance Sheet
 
Exiting the second quarter, POSCO had cash and cash equivalents of approximately KRW 7,001 billion (US$5.76 billion), up 16.9% year over year and 5.5% sequentially. The company secured additional finances through debt issuances with its long-term debt balance increasing 5.7% year over year and 22.4% sequentially to KRW 7,542 billion (US$6.24 billion).
 
Outlook
 
POSCO remains confident of completing its facility additions and upgrades for capacity expansion in the second half of 2010. Also, the company is progressing well with its overseas investment in India. Global steel demand is expected to grow 12% in 2010 due to continued economic recovery.
 
For fiscal year 2010, POSCO expects consolidated revenue of approximately KRW 46.5 trillion (versus prior expectation of KRW 45.2 trillion) and consolidated steel production to reach 36,100 million tons. Sales volume is expected to be roughly 32.3 million tons and consolidated operating profit is expected to be roughly KRW 6.2 trillion.
 
POSCO increased its investment target for 2010 to KRW 10.4 trillion from KRW 9.0 trillion. The company allocated roughly 4.9 trillion for domestic steel, 1.5 trillion for overseas investments and 4.0 trillion for new growth opportunities.
 
POSCO is the largest fully integrated steel producer in Korea and one of the premier steel producers in the world. Prime competitors of the company are Arcelor Mittal (MT) and privately-held Hyundai Steel Company.
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