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POSCO Expands CGL Facility in India

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Korean steel producer, POSCO (PKX) has moved a step forward to leverage benefits from the growing automobile market in India. The company recently concluded the construction of its Continuous Galvanizing Line (:CGL) with an annual production capacity of 450,000 tons in Maharashtra, India.

POSCO’s Indian unit, POSCO Maharashtra, through this newly established CGL facility will be engaged in manufacturing Galvanized Steel (GA) and Galvannealed Steel (GS) plates which are widely used in automobile and home electronics industry. Gwangyang Steelworks will provide the necessary raw materials for the company’s production procedure. Besides, the CGL facility is expected to enhance the company’s presence in India as well as in global markets by establishing a supply chain for POSCO’s manufactured automobile products.

According to the World Steel Association, steel demand in India is expected to grow by 6.9% in 2012 and 9.4% in 2013. To meet this end, the company will soon construct an additional cold-rolled steel factory and an electric steel plate factory by 2014 and 2013, respectively.

POSCO’s brand acquisition strategy, sales execution, marketing and innovation capabilities helped it establish itself as the world’s third largest steelmaker and market leader in the industry. The company projected a 3% year-over-year increase in global steel demand and roughly a 1% increase in domestic demand in the fiscal year 2012. However, it faces stiff competition from rivals such as Grupo Simec S.A.B. de C.V. (SIM), CLARCOR Inc. (CLC) 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.

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