PKX Invests in STS Plant in Vietnam - Analyst Blog

Korean steelmaker, POSCO (PKX) announced investments to establish a cold-rolled stainless steel (STS) plant in Vietnam with an annual capacity of 200,000 tons. The plant is expected to be ready for commercial production by February 2012 and enable POSCO to tap the growing need for cold-rolled stainless steel in Vietnam.

The STS plant will be built in Vietnam's Nhon Trach Industrial Complex by POSCO VST, a Vietnam-based cold-rolled STS plant acquired by POSCO in October. POSCO VST has current annual production capacity of 85,000 tons.

In the first phase of the expansion plan, POSCO VST will install a 100,000 ton scale rolling mill and 200,000 scale annealing equipment by February 2012, resulting in a rolling capacity of 185,000 tons. POSCO aims at attaining 235,000 tons of capacity by 2012 with further addition of 50,000 tons of full hard from Pohang Steelworks.

 It is anticipated that by 2014, POSCO VST will produce 285,000 tons annually, becoming the largest cold-rolled STS product provider in the Southeast Asia region.

We believe POSCO is well positioned to leverage from its expansion into the fast-growing markets in the long run. Also, the outlook for global steel market is promising with an expected surge in demand by 13.1% in 2010 and 5.3% in 2011, according to the World Steel Association.

Despite these positive factors, POSCO's performance in the quarters ahead are expected to be restricted with possible headwinds from rival steel manufacturers worldwide, including Arcelor Mittal (MT), Nippon Steel Corp. (NISTY.PK) and privately held Hyundai Steel Company.

We currently maintain a Neutral recommendation on POSCO.