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POSCO Energy may post net loss in 2016

POSCO Energy, the energy business arm of steel-making giant POSCO, is suffering dwindling profits unable to withstand the business slowdown, raising concerns over marking its first ever net loss this year, according to an industry source Wednesday.

“The country’s largest LNG power producer faces earnings cliff as its entire businesses are mired in a slump. When the downward trend continues, it is highly possible for the energy giant to post its first net loss in its 47-year history,’’ an industry insider said on condition of anonymity.


The company’s first quarter performance backed the grim outlook for this year. According to the corporate data, operating profit of POSCO Energy halved to 41.5 billion ($35.9 million) from 85.3 billion won in the first quarter last year. The firm’s on-year net profit plunged to 17.5 billion won, a 72.1 percent fall from 62.7 billion won in the first three months of the year from a year ago.

The steep fall in profit originated from its main business -- LNG power generation.

The downward trend in earnings is forecast to worsen as the operating ratio of the company’s flagship Incheon LNG combined cycle power plant hovers at about 40 percent this year, from about 50 percent in 2015.

“The LNG power producers are in the same boat due to oversupply of power,’’ a company spokesperson said.

In addition to the continued business slump in its dominant LNG power generation business, POSCO Energy also faces difficulties in the new business areas, including the fuel cell-based eco-friendly power business.

Sales of the new business fell 65 percent to 70.5 billion won in 2015 from a year ago. Industry watchers said a bigger profit fall in the business is expected this year in line with falling demand for renewables amid the continued low oil prices.

To make matters worse, the company’s renewable energy business unit stopped receiving new orders this year to cut costs and do a strategic review on its future.

“To cope with the business difficulties, the company has run an early retirement program for the fuel cell power business unit as planned,’’ a company spokesperson said, adding the firm is supposed to close the program next week. It is not certain yet how many employees applied for the program.

When it comes to rumors on the investment attraction efforts after separation of the fuel cell division from POSCO Energy, the spokesperson made it clear that the business spin-off is not an option.

The continued business slowdown had an impact on the credit rating of POSCO Energy. NICE Holdings, a local credit rating agency, lowered the energy firm’s rating by one notch to AA0 from AA+last month.

“It will take a while for POSCO Energy to turn around its fuel cell power business, which faces mounting losses caused by rising cost in maintaining the clean power production facilities that the company completed,” Jang Jun-ho from NICE Holdings said.

By Seo Jee-yeon (jyseo@heraldcorp.com)
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