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POSCO keeps 2015 spending target steady on weak China demand

[SEOUL] POSCO on Thursday kept its 2015 spending target largely unchanged at 2.9 trillion won (US$2.66 billion) from 3 trillion won on a parent basis last year as the world's sixth largest steelmaker expects Chinese demand to remain sluggish.

Steel prices are hovering at their lowest in a decade, as China, the world's biggest producer and consumer of the alloy, faces weak demand from manufacturers in a sluggish economy slows. The market is also flush with steel from local producers.

With the outlook for China unlikely to improve soon, POSCO has been trying to restructure its affiliates since chairman Kwon Oh-joon took office in March, but analysts say it is not moving fast enough to shore up its balance sheet.

POSCO said it expects 2015 sales of 29.3 trillion won on a parent basis, hardly changed from 29.2 trillion won last year.

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Last week, POSCO posted a smaller-than-expected 30 per cent rise in its operating profit in the October to December period.

China's economy last year grew at its slowest pace in almost quarter of a century, further reducing demand for the alloy used in the automobile, shipbuilding, construction and home appliance sectors. The slowdown is expected to continue this year.

The South Korean firm is also badly placed to compete with Japanese rivals such as Nippon Steel & Sumitomo, which this week raised its profit forecast for the 2014/15 financial year helped by a weaker yen and solid local demand.

Kwon had previously said POSCO was seeking to list POSCO Energy, a power plant unit, last year as part of its restructuring efforts, but that has yet to happen.

POSCO is also trying to sell a stake in its construction unit POSCO Engineering & Construction.

In December, it agreed to sell 52 per cent stake in POSCO Speciality Steel for 567.2 billion Korean won but later than month spent 239 billion won on buying new shares of its loss-making industrial equipment affiliate POSCO Plantec .

Shares of POSCO ended up 0.8 per cent prior to the outlook announcement. The stock is hovering at lows last seen during the 2008 global financial crisis.