POSCO-CFPC Advances Its Operation

POSCO-CFPC, a processing entity of Korean steel maker POSCO (PKX - Analyst Report), recently declared a positive end to its efforts to provide various high quality services to its clients through its self-sufficient platform.

The center, located in Huanan, China, started its operation in 2004 with a capital base of $22.3 million, and it has several functional units such as Production, Carbon Steel Sales, Stainless Steel Sales, QSS Innovation and Management.

POSCO-CFPC’s sole purpose is to enhance the company’s presence in China by establishing a supply chain for POSCO’s manufactured steel products, along with lending support to its clients through several types of financial and operational assistance. Moreover, POSCO-CFPC has the capacity to process 100,000 tons of STS materials and 120,000 tons of carbon steel yearly through its two well-managed processing lines.

POSCO-CFPC is engaged in the promotion of numerous local brands in the Huanan province through establishing strategic partnership agreements with various major companies of the electronics industry, such as Midea, HITACHI, GLANZ and Vanward. Apart from the business perspective, the company is also highly dedicated to creating social awareness across the region.

The company’s brand acquisition strategy, sales execution, marketing and innovation capabilities helped to establish itself as the world’s third largest steelmaker and market leader in the industry. In addition, the company is continuously strengthening its foothold in the Chinese market through expanding its operations; it currently has 20 processing centers across China.

Steel demand in China is expected to grow by 4.0% year over year both in 2012 and 2013, according to the World Steel Association. To meet this end, the company will soon be launching a new processing center focused on galvanized steel sheets and steel alloy sheets in Foshan, Guangdong Province. For 2012, the company anticipates a 2.5% increase in revenue to KRW 70.6 trillion. Crude steel production is projected to rise 3.0% while investments should rise by 10.0%. However, it faces stiff competition from rivals such as Grupo Simec S.A.B. de C.V. (SIM), CLARCOR Inc. (CLC - Snapshot Report) and Shiloh Industries Inc. (SHLO).

The Zacks Consensus Estimates for 2012 and 2013 are at $7.61 and $8.66, respectively. These represent a year-over-year decline of 29.14% in 2012 but a growth of 13.80% in 2013. We currently maintain an ‘Underperform’ recommendation on POSCO. The steel giant has a Zacks #4 Rank, translating into a short-term (1-3 months) ‘Sell’ rating.