Posco to Cut Stainless-Steel Output for Third Month

By Sungwoo Park

Sept. 9 (Bloomberg) -- Posco, Asia's largest maker of stainless steel, plans to extend an output cut this month on weak demand following similar reductions in July and August.

The mill will reduce production by 20 percent, or 25,000 metric tons, from a normal monthly level as it did in the two previous months, Suh Young Sea, senior vice president in charge of the stainless-steel business, said today in a phone interview.

Chinese makers said last month demand in China, the world's largest producer, will remain weak in September amid concerns that economic growth is faltering. The slowdown may deter stainless producers from buying more nickel, used to make the rust-resistant metal, and hurt prices that have dropped 28 percent this year.

``Stainless-steel makers are trying to stabilize prices through production cuts because demand is not good, and prices are weak as a result,'' Kim Gyung Jung, an analyst with Samsung Securities Co., said in Seoul. ``Demand is likely to remain weak for the time being.''

Posco declined 3.8 percent to close at 433,000 won in Seoul trading, worse than the 1.5 percent loss in the Kospi Index. The Pohang, South Korea-based steelmaker's shares have slumped 23 percent over the past year.

The company cut stainless-steel prices by as much as 10 percent in August, the first reduction this year, as customers deferred orders on expectations that falling nickel costs will result in even lower stainless prices.

Property Slump

Global stainless-steel demand probably won't recover until early next year as soaring energy prices and a property slump in major economies curb consumption, MEPS (International) Ltd. said on July 31.

``We will continue to cut output this month because demand is yet to recover amid a lot of uncertainties,'' Posco's Suh said. The ``local construction industry is still not in good shape and there remains concern over the overall economy.''

The South Korean government is considering measures, including lower taxes, to boost the domestic property market, which is struggling with the highest number of unsold homes in more than 10 years. Prospective buyers' concerns that interest rates may rise are also driving people away from the property market.

South Korea's economy grew 4.8 percent in the second quarter from a year earlier, the weakest pace in more than a year, the central Bank of Korea said on Sept. 5.

``Hopefully, we expect the stainless-steel demand to recover after October when a peak-demand season begins,'' Suh said.

Nippon Steel Corp., Japan's second-biggest maker of girders, said today it was cutting production of H-beams by 10 percent from August levels because of weaker construction demand.

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net