PKX Offers Korea 1st SNG Plant

Korean steel producer POSCO ( PKX - Analyst Report ) is on its way to giving Korea its first synthetic natural gas (SNG) plant by the end of year 2013. The company commenced construction of the plant on June 7 at Gwangyang Steelworks.

POSCO E&C will be responsible for the construction of the SNG plant with an annual production capacity of 500,000 tons. The plant, which is going to be a secured source of energy for the region, will be constructed using environment friendly technologies.

Synthetic natural gas is a new alternative to Liquid Natural Gas (LNG), prepared by gasifying low-cost coal at high pressure and temperature and, subsequently, purified. This product, serving as a welcome substitute, opens up new avenue to restrict annual import of LNG worth KRW 200 billion in Korea.

We believe that POSCO’s relentless focus on regional diversification, self-sufficiency in raw materials and higher proportion of value-added products in its product mix are all encouraging attributes.

For fiscal year 2011, management increased its revenue and sales target due to new facility additions and full capacity operations. Consolidated revenue is expected to be approximately KRW 67.8 trillion compared with KRW 66 trillion expected earlier.

POSCO is the world’s third largest steelmaker on the basis of output. The company primarily manufactures steel for the shipping and construction industries and operates through its two steel production facilities, the Pohang Works and the Gwangyang Works.

Rising competition and higher raw material costs, however, are factors that cause a great deal of worry. The company faces stiff competition from Arcelor Mittal ( MT - Analyst Report ) and Nippon Steel Corp.

We currently maintain a Neutral recommendation on the stock.