Hyundai Steel Says Demand Improving as Profit Beats Estimates

By Shinhye Kang

July 28 (Bloomberg) -- Hyundai Steel Co., South Korea’s biggest maker of construction steel, reported a better-than- expected second-quarter profit on a stronger won and lower costs, and said government spending may spur demand in the second half.

Net income fell 13 percent to 283.3 billion won ($228 million) in the three months ended June 30, from 325.5 billion won a year earlier, the Incheon-based company said in a regulatory filing today. That compares with the 126.7 billion won median profit estimate of 8 analysts surveyed by Bloomberg.

Hyundai Steel, the nation’s second-largest mill, forecast in January that sales will fall 26 percent this year, and cut prices by 20 percent in June. Demand is reviving as South Korea spends $52 billion to bolster economic growth, spurring bigger rival steelmaker Posco to lift output targets for the year.

“Steel demand from not only public sectors but also private sectors will revive as the economy is recovering,” said Kim Mi Hyun, an analyst at LIG Investment & Securities Co. “Operating profit will increase in the second half of this year after hitting the bottom in the first quarter.”

Hyundai Steel rose 0.6 percent to close at 63,900 won in Seoul trading, compared with a 0.1 percent gain in the benchmark Kospi index.

The “market environment may improve in the second half, helped by increasing demand from the public sector and seasonal demand,” the company said in an e-mailed statement today.

Hyundai Steel will meet its initial sales target this year, the company said today. In January, the company forecast 2009 sales of 7.8 trillion won. Second-quarter sales declined 34 percent to 1.95 trillion won.

Stronger Won

Operating profit, or sales minus the cost of goods sold and administrative expenses, fell 70 percent to 135.3 billion won.

Net profit rose more than five-fold from the previous three months as raw material costs fell, the stimulus boosted demand and the stronger won reduced the cost of Hyundai Steel’s foreign debt. The company, which gets almost 70 percent of sales from construction steel including reinforcing bars, said in March it will start increasing production.

The company has said it will raise H-beam export prices by $50 a metric ton for shipments in July and August as demand revives internationally. Last week, the company raised 2009 capital expenditure target by 11 percent to 2.36 trillion won.

Its first blast furnace will start operation in early January next year, the unit of Hyundai Motor Group also said today.

To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net.