SEOUL South Korean steelmaker POSCO (005490.KS) cut its annual investment target after posting a 25 percent drop in quarterly profit, tightening its belt in response to concerns about its appetite for acquisitions.
The company said it would only take a very small stake in a consortium seeking to buy Australian miner Arrium Ltd (ARI.AX), while a source familiar with the matter said it had only made a preliminary offer to look at ThyssenKrupp's (TKAG.DE) mills in Brazil and the United States.
The world's fourth-largest steelmaker has been hit by a cooling China economy that has sapped demand for steel as well as by chronic oversupply from Chinese rivals.
The discouraging results come on the heels of a cut in its credit rating by Standard & Poor's that sent its shares down as much a 3 percent to the lowest in over a year.
Steel prices in China, the world's biggest consumer and producer of steel, tumbled to a three-year-low in September. POSCO said demand for steel had bottomed out and would gradually recover from the fourth quarter, but forecast only 3 percent growth for next year.
"The recovery of the steel industry is being delayed," Shim Tong-wook, a company senior vice president told a briefing.
The steelmaker cut its investment target for resources by seven percent to 3.9 trillion won ($3.5 billion) and added that it could cut even further if needed. The new target is now $1 billion lower than an initial estimate made earlier in the year.
It was not immediately clear what investments would be scaled back.
POSCO has been looking to boost its access to iron ore and coal used to make steel, including taking a 12.5 percent stake in the $10 billion Roy Hill iron ore project in Australia and a 24.5 percent stake in the West Pilbara Iron Ore joint venture.
It did say it was optimistic about the consortium's bid for Arrium, which has rejected a $1 billion offer.
SALES OUTLOOK CUT AGAIN
POSCO, the first major steel mill to report July-September earnings, posted an operating profit of 819 billion won ($741.7 million) on a parent basis, slightly below an average estimate of 840 billion won from 20 analysts polled by Reuters.
This was down from 1.09 trillion won a year ago and a third consecutive quarter of profit decline. POSCO made 1.06 trillion won in the previous quarter.
The South Korean firm, 5 percent owned by Warren Buffett's Berkshire Hathaway (BRKa.N) (BRKb.N), also cut its annual sales target for a third time to 36.3 trillion won.
That is down 3.2 percent from its July estimate and 12 percent below the top of the initial range it gave in January. Quarterly parent sales fell 11 percent to 8.9 trillion won, versus an average forecast of 8.95 trillion won.
Its weakened earnings outlook has prompted brokerages to cut their target share prices for the company and its stock has lost 8.3 percent so far this year, after slumping 21 percent in 2010 and 22 percent in 2011.
Japanese steelmaker JFE Holdings (5411.T) plans to announce quarterly earnings on October 24. ArcelorMittal ISPA.SA, the world's largest steelmaker, will report on October 31, while Nippon Steel and Sumitomo Metal Corp (5401.T), which merged this month, will report results on November 9.
The prolonged market slowdown has forced some steelmakers in Europe and China to go as far as suspending production or trying to sell or shutter blast furnaces.
Baoshan Iron & Steel Co (600019.SS) (Baosteel), China's biggest listed steelmaker, suspended production at a loss-making plant. In Europe, ArcelorMittal told unions it will permanently close two mothballed furnaces in northeastern France.
($1 = 1104.2000 Korean won)
(Additional reporting by Miyoung Kim and Eunhye Shin; Writing by Edwina Gibbs; Editing by Michael Urquhart)