We believe that steel prices bottomed in 1Q 09. Production cuts by major steel producers have reduced supplies while massive stimulus spending by various governments on infrastructure and construction and rebound in economic activity as recessionary forces subside is boosting demand. This is especially positive for POSCO given its position as one of the lowest-cost steel producers, enabling it to generate healthy cash flows even when prices are depressed. The company was able to increase steel prices for three consecutive months from June to August, before maintaining them in September 2009. Although scale up of steel production will restrict upside potential in steel prices, and the industry is currently experiencing a dip in pricing again, revisiting 1Q 09 low levels seems unlikely over the near to medium term. In 2010, price realizations on steel sales are expected to increase y-o-y as stimulus spending boosts consumption. Additionally, the company has successfully negotiated a substantial cut in annual contracted prices for iron ore and coking coal which will further boost margins in the coming fiscal year. Thus, POSCO’s low-cost structure and strong balance sheet, along with Management’s expansion plans and backward-integration efforts, lead us to hold an optimistic outlook for the company.

From September 2009, the Research Oracle will begin to accept research submissions from readers – whether amateur or professional analysts – from around the globe. To receive notification of the launch and rules, contributors may register now at
http://www.iirgroup.com/researchoracle/researchoracleaward