Steelmaker Posco's shares up on news of Buffett's buy

SEOUL - SHARES in South Korean steelmaker Posco surged as much as 4.1 per cent yesterday after Mr Warren Buffett's Berkshire Hathaway said it held a small stake in the firm.

The disclosure is the latest positive news for Posco, the world's No. 3 steelmaker, which has seen shares scale record highs amid optimism about its improving fundamentals and a consolidation in the global steel sector.

Berkshire stands to make a killing on its 4 per cent stake in Posco, which it had bought as of the end of last year, if it has not already sold it. The stake was worth 1.27 trillion won (S$2.03 billion) as of yesterday's closing share price, more than double the US$572 million (S$874 million) Berkshire paid for the stake.

'Buffett's other investments include Coca-Cola, so to have Posco included in the same group can only help it gain more global status,' said Samsung Securities analyst Kim Gyung Jung.

'It's a good decision. Posco is going to benefit from a recovery in global steel prices. Its production costs are going to get lower. Posco is also expected to steadily increase dividends,' he added.

Mr Buffett said Berkshire owned a 4 per cent stake, or 3.5 million shares, in Posco, as of Dec 31 last year, according to his widely-read annual letter to shareholders out on Thursday.

He did not comment on Posco directly, just listing the steelmaker among the global companies in which Berkshire has invested. An official at Posco said it did not know when Berkshire bought shares in the company.

Posco shares surged on the news, ending up 3.12 per cent at 364,000 won, compared with a 0.2 per cent fall in the benchmark Kospi. The shares hit a record 384,000 won on Feb 23.

Shares in the steelmaker have surged 80.2 per cent since the beginning of last year to yesterday's close, far outperforming the 2.5 per cent gain in the Kospi during that period.

Analysts have attributed the rally to expectations for further consolidation in the global steel sector, after Mittal Steel took over rival Arcelor last year in a deal worth around US$33 billion.

Posco's chief executive Lee Ku Taek said last week that it was seeking to acquire promising firms to boost its own value and protect itself against hostile takeover bids, while pledging to increase shareholder value, which investors believe will come in the form of dividends.

REUTERS