Posco Holdings Inc (PKX) 2005 Q1 法說會逐字稿

Good afternoon, all sites. Welcome to POSCO, to first-quarter 2005 earnings announcement conference call. For the duration of the presentation, all lines will be in listen-only mode. This conference call is being recorded. If you have any objections you may disconnect now. I would like to hand over to the call leader today, Mr. Mark Yoon; and I will be standing by for Q&A session. Mr. Mark Yoon, you may begin now. Thank you.

Welcome, everybody, and thank you very much for participating in this conference call. This is Mark Yoon, the Korean steel sector analyst for Merrill Lynch, based in Seoul, who will act as the moderator. Earlier today after the market closed, POSCO has released its preliminary 1Q results; and the Company has offered a separate earnings conference call with overseas investors as the main audience.

We will start the call with Mr. Dong-Hee Lee, the Senior VP and Chief Financial Accounting Officer at POSCO, who will provide the rundown of the 1Q results as well as the recent developments. We will then follow with a Q&A session during which POSCO will field any questions that callers might have. Let me now turn over the mic to Mr. Lee.

Good afternoon, everybody. This is Dong-Hee Lee, the Chief Financial and Accounting Officer of POSCO. I would like to thank all of you for joining this call today. As some of you may have already gone through our first-quarter earnings release, results are outstanding.

The first quarter saw sales revenue rise by 32% to KRW 5.6 trillion, compared to the same period of 2004. Operating margin rose by 76.2% to more than KRW 1.7 trillion, and net profit by 81.7% to KRW 1.3 trillion. This first quarter's revenue rise was largely attributable to the continued strength in steel price. (indiscernible) increased high valued-added product and the improved productivity includes (ph) the production, despite our impact of Number Two blast furnace refurbishment in Gwangyang from 15th of March to end of May.

In addition, the strength in the Korean won also put us in a favorable cost position, in particularly in raw materials. All this resulted in the historic high level of operating profit margin and EBITDA margin at the 31.4% and 37.8%, respectively.

This great performance has been reflected in our share price, and this year's first quarter and the share price (indiscernible) to 201,000 won, with the 24.1% (ph) CapEx (ph) gain compared to that of the first quarters of 2004.

I would like to touch on the steel business environment. I am sure that the global steel industry continues to show tight supply of steel. We believe the strong demand was from China, together with the supply-side discipline, have maintained and will maintain steel prices at higher levels for us to achieve strong return for the remainder of the year.

In this regard, we were able to raise the domestic steel price by approximately 7% to 12% across the board, beginning in the April shipments. Our export prices also continued to mark at the record high levels.

The second, on the cost side, despite the significant increase in the raw material prices, we believe that the incremental revenues stemming from the price hike, together with the strength in the Korean won, will comfortably (ph) offset the incremental costs arising from the raw material price hike. Furthermore, POSCO's unique vessel operations, that is, life-time (ph) charter vessel, which covers more than 70% of raw materials shipment, will continue to put us in a significantly comparative cost position in this high freight market.

Third, on the operations side of POSCO, we have made some strategic moves to boost our business in the high valued-added product. We began the construction of a charsis (ph) stainless plant with a 600,000 ton capacity in Zhangjiagang in January 2005. On the dollar (ph) steel end, the launch of CRT (ph) stainless plant last month in Qindao has added 180,000 pounds of stainless steel product.

Furthermore, the construction of a number of (indiscernible) and Number Six (indiscernible), which are well in progress as part of our continued effort to expand our business in high value-added product. Once completed, these two plants will add 850,000 pounds of auto steel sheet to our current capacity, catering to the growing demand for the auto steel sheet around the globe. We also continue to make efforts to successfully commercialize the Finex scanner (ph) steel casting and hydroforming, as this production technology will become the pillar of POSCO's operations in the future.

Of course we will continue to focus on managing our (indiscernible) barrier. We increased the dividend payment to KRW 8,000 per share for fiscal year 2004; introduced the cumulative voting and the paper voting system to enhance the value of minority shareholders. Having completed about 80% of (indiscernible) announced 2% share buyback, we are scheduled to complete the share repurchase by early May 2005.

Finally, we have revised our business trend in March. As we do our quarterly basis incorporating all the new mecho-testers (ph), as well as the change in the steel business environment, our newly revised production and sales volumes are 31.3 million tons and 30.4 million (ph) respectively. We have also revised our revenue to KRW 23.9 trillion and capital expenditures to KRW 4.1 trillion.

In conclusion, on the base of the solid first-quarter results and the continued strength of the steel cycle, we are quite confident that we are well positioned to set record high earnings for 2005. The strategic initiatives mentioned above will put us on solid footing for the future. Thank you once again for taking time out to join this call. Thank you very much.

Thank you Mr. Lee. We will now shift over to Q&A session. Operator, if you could provide instructions for those with questions, that would be great.

(OPERATOR INSTRUCTIONS) From Hong Kong, Mr. Odeen Chan (ph).

A few quick questions. One is on the percentage of higher value-added products sold in China. Can you give us the percentage of higher value-added steel that is sold in China, versus the total amount of steel sold in China?

Okay, let me check the data during the time. Your next question, second question?

Just on your forecast (technical difficulty) for 2005. Do you have a steel forecast demand, global demand for 2006, that you can share with us?

Also, on some bookkeeping questions I missed out during the call, your revised CapEx investment number for 2005. I did not get that number. Also, a share buyback for 2005, how much are you looking to spend? Thanks.

Okay. This is Youn speaking. For the first quarter of this year, we maintained 25% of our export ratios, and 35% of the 25% to China.

I'm sorry; how much? 25% was for export?

Yes; and 25% of the 35% is to China. Okay? Around more than 60%, our major export product is about the stainless, HR coil, and the CR coil. That is what we call is the high value-added product.

Okay. So 60% is considered high-value product.

Right.

Also, I've got one more question. You mentioned there's added capacity of 850,000 tons of auto steel coming online this year. Does POSCO already have agreed sales? And to whom?

You mean our auto steel, also steel to domestic and overseas, right?

Correct.

If we increase our capacity? You know, especially the auto multiple (ph) sheet is very short in Asian markets. If we produce to 5 million tons by the year 2007, of course we will spend -- this also is shipped (ph) in Korea -- and the remaining, we will increase the export volume to -- and including Japan and also the Asian market, meaning (ph) mainly China.

Okay. Do you have the investment numbers, CapEx for '05 and share buyback number?

CapEx this year, we already revised the number around KRW 4.1 trillion in this year. Relatively higher figure compared to the previous year.

Do you have since -- your depreciation number and interest expense for first quarter '05 and '04?

Usually, our depreciation is around -- we maintain KRW 1.5 trillion. I think that this number will be continued through this year.

Okay. And your interest expense? It's probably quite low.

Yes, hold on a second. First quarter of this year, interest expense around KRW 30 billion.

We have some interest income, which is similar to the interest expense, so that expense is (indiscernible).

Last question, sorry guys. CapEx for the last quarter, CapEx for the first quarter?

CapEx of first quarter?

Yes. First-quarter CapEx?

So far we spent KRW 0.7 trillion for three months this year.

Got it. Thank you.

Ms. Suba Banyon (ph).

My questions are, I have two questions, one is a specific question on your CapEx. I see that you just mentioned that you are spending KRW 4 trillion in 2005, which is about 80% higher than last year. Can you give us a detailed breakdown of the KRW 4 trillion? How much are you planning to spend on your Indian project, and what are for the upgrades?

Also, I hear that you may be interested in bidding for a power generation company. Also you had mentioned last time I met you that you may be making an acquisition and may be interested in making an acquisition in China; and whether this number of 4.1 trillion includes this acquisition plan?

Can I also give my second question right away? It is whether you have an ROE target for the Company; and what are your plans with the 8.7 million treasury shares that you have?

Hold on a second. Okay. As I explained, we're expecting KRW 4 trillion for CapEx this year. If we break down, it is a little bit difficult to say, because the India project and the China project is also mixing up here.

As I told you, we usually maintain KRW 1.5 trillion for maintenance, and another 2 trillion or less than 2 trillion is for the domestic growth. You know, reinvesting the domestic steel, (indiscernible). The remaining is for, as we mentioned, the possible Chinese steel maker M&A, maybe, is included here. But at this moment it is a little bit difficult to say.

So it is inclusive, the 4.1 trillion?

Yes.

What about the one, the power generation company that you may be bidding for?

You mean the power company in Korea recently (multiple speakers) in the Korean newspaper?

That's right. Yes. The bidding I heard is this Friday.

This Friday, that's right.

Are you bidding?

Yes, I think it is included here. But we don't know how much the money will be (inaudible).

Okay. What about the second question, the ROE target? And what do you plan to do with your treasury shares?

About 3% of our treasury shares will be used for the ESOP program.

30% of the treasury shares will be used for ESOP. Okay. In how many years?

For coming two years. Coming two years. (inaudible)

3% of our outstanding shares.

3%?

Yes, 3% of our outstanding shares will be used for the ESOP program over two years. The remaining is not yet decided, but definitely this holding treasury share will be for enhance our shareholder value in the future.

Sorry. Can you tell us what the options are? What could you do with 8.7 million shares after keeping 3% for ESOPs?

The remaining treasury shares, as I told you, is not decided yet, but definitely we promise not to resell to the market.

Sorry. The question on the ROE target for the Company?

ROE target for the year 2005 we just said to be 27.8% for the first quarter. (inaudible) It is about (ph) 30%, so 32% in the first quarter. So we are sure to get our target for this year.

Okay. Thank you.

Operator, if I could ask you to say out the investment firm to which the questioner belongs that would also be great.

Thank you, sir. Julien Onillon.

HSBC. Two questions. I just would like to come back on the Chinese potential acquisition. Do you think that -- you mentioned that, apparently today, that you are interested would (ph) do something which is not surprising. But do you believe that there is some change in the environment in China from a political perspective which leads that you can make some acquisition in China more easily?

Since Mittal (ph) Steel and Arselor (ph) -- well Mittal Steel are already make an acquisition of Verlein (ph) and Arselor negotiation apparently with Chingchow (ph). Don't you think also you can participate more actively, and there is some change in the Chinese political sense to be more open to foreigners?

My second question is concerning stainless steel. Are you expanding your capacity, but in Asia, (indiscernible) Asia and the rest of the world there's many capacity expansions currently going on. The price in Asia, because of (indiscernible) price, the prices are still high and going up. But around the world, in Europe and the U.S., the stainless steel prices are going down because of all of this capacity coming onstream.

Are you afraid about those expansion capacity in the world? I know you're doing more ferreting (ph) than authentic (ph). But do you think that it may have a sort of depressed, depressing time in Asia with all of the Chinese capacity also coming onstream in the next couple of years? What is your view about the stainless steel market currently?

Hold on a second.

Hello. Sorry for keeping you waiting. First question, any M&A chance in China? As we know, there are more than 3,000 steelmakers in China, and only 15 steel companies can produce over 5 million tons. That is what we know.

The Chinese government, they tried to reduce the number to very -- 20 or 30 sizable steel companies in the future. In this case, maybe POSCO has a chance to buy one of the steel companies in China. But the priority is the profitability of a Chinese steel company. But as you know, the current steel cycle is upturned, so M&A condition is not so good at this moment. Also, not only the M&A in China; greenfield product is also one of our main interests in China.

So what I am trying to say is we are looking for the Company to -- I mean our priority is the profitability in China, okay?

Sorry, just to come back. What do you mean? You mean that you won't get a very high quality or the best company possible in China? Or you are thinking that maybe you could acquire a small company, which is maybe not competitive but which your own technologies and all the investment you could do in this company, you could make it very competitive in the future?

So it is more the big one you're thinking about, or it is more the very small one where you could maybe invest to make it very competitive? Which sort of direction are you thinking about?

Well, each has the two sides of coin. But in general, we feel the current time is not good for the acquisition of the steel company who are the -- (inaudible) very bullish over the trend of this sales cycle. We got actually proposed numbers of the options for the Tuationcom (ph) China, but we are not sure any one of them could guarantee that profitability in the future.

As mentioned, we prefer the greenfield (ph), which we can apply the auto-technology (ph) of the current POSCO to the entity in China, but which should be permitted by the Chinese government, who is strict for the permission of the investment into the heavy industry. So we would like to be prudent to select a choice among the (indiscernible) at the moment.

Thank you. Just also on the stainless steel? On the prospect of the stainless steel in the long term?

As you said, you mentioned that there is a lot of capacity will be coming onstream in the future, especially in Europe and US. If that is the case, I think it is going to have some impact on the Asian region as well. Especially because in the case of stainless, there is this past year (ph) provision which incorporates any changes in the nickel price.

Also stainless is one of those products that is readily exportable from one region to another, and that industry itself is competed on a global basis. So having said that, I think in the future it is going to have some impact on the supply and demand situation in Asia. However, in the case of POSCO, we have been developing some unique technologies to cut down the cost, and we should be able to endure any downturn in the stainless cycle.

Also, we are -- of our 2 million stainless sales, currently about 20% is stainless 400 series. We are trying to increase that portion as we go forward. In the case of stainless 400 series, it does not require the input of nickel, and I think that is going to help us on the cost side.

Thank you very much.

Mr. Anan, (ph) Armand Trandan (ph).

I have two questions. The first concerns the rates (ph) of the raw material prices. There have been reports that BHP has been trying to ask for a 100% price increase while (indiscernible) settled for 71%. Can you just comment in terms of your own iron ores cost increase estimate, how much are you sourcing from BHP, and what is the price increase that you expect from BH, on the BHP-INOS (ph)?

My second question relates to inventory. I noticed in the presentation that your inventory in the first quarter has gone up marginally quarter-on-quarter and even a little bit year-on-year. Can you just comment on the inventory situation? And do you expect to see further inventory increases?

We have 25% (technical difficulty) the total purchase volume from BHP each year. As far as I know, steel, the price has not been settled yet. But the others -- I mean the price for the iron ore from others like Rio Tinto and CVRD has been set to be around 21, 71% up (ph) from last year.

Inventory, which stays around 350,000 tons, which is slightly upward in the first quarter, but it does not mean necessarily the (indiscernible) from the demand side. The normal level of the inventory used to be around 700,000 tons. But we could -- we have not reduced and maintained an unprecedented low level to be half of the previous normal level, due to the innovation of the management with Six Sigma or the process generation.

So you don't have to worry about the marginal fluctuation of the inventory. We are sure we can maintain the inventory to be around 350,000 tons throughout the year. The demand is very strong in Korea.

Okay. Just on the comment in terms of BHP, since BHP sales supplied 25%, if they hold off for an increase will you be where you'll pay a higher priced than what you paid for Rio and CVRD? Do you mean that you pay a higher price, does that mean that CVRD and RIO can come back and say that, look, you have to give us also a higher price?

I don't think so. Because recently I heard the Chinese steel company and they a very strong resistance what the BHP-B offered, increase above more than CVRD offered. I think that the increased ratio will be the same as the one we had with the CVRD and (inaudible).

Okay. I guess one of the arguments which BHP is making is, if you can pay 71% of CVRD they should get higher; because on a devalued (ph) basis they could still be the same to you from Australia.

At this moment, it is a little bit difficult to forecast. The new issuation (ph) is still under negotiation, so let's see what the results will be.

Okay, thanks.

Ms. Anis Chee (ph).

Mr. Lee, I am not sure if I got it that you wrong -- did you say that you export 35% overseas; and among the 35%, 25% are to China? Then the second question is, among your client base in China, which sectors are they? Can you give me some names of the companies in China that's your client?

POSCO used to ship around 25% of total sales to outside. So the export used to be 25% of total sales; and the remaining 75% is toward the local market. Of the total exports, 35% is toward China. It is clear to you?

Yes, thanks.

Most of the shipments toward China is the high-quality, high-quality product, even for the hot rolled coil. It is for the -- (indiscernible) into the cold rolled coils or (ph) the high quality for the industry.

We cannot break down the end-users at the moment because we have been selling to the serge agents (ph). But the end-user may probably include the home appliance, the auto, and some parts for the construction for the exterior decoration et cetera.

I see. Can you give me some names of your clients in China?

Yes, if you ask that, we are operating around 20 joint ventures in China. Also, we export the stainless HR to Zhangjiagang Stainless Company as feedstock. So around 40% or 50% we have put our joint venture in China. To.

All right. I see. So mainly your joint ventures. All right, thanks.

Does that you conclude your question?

Yes.

Christina Vodi (ph).

I had several questions. First of all, in the first part of your presentation, just to clarify, you mentioned that the price increases that you were going to implement in April within the domestic market, you anticipate that those would offset the additional raw material costs that you will pay when you renew your contracts with your major raw materials suppliers.

Just to clarify, are you saying that your operating margin of 31.4% that you achieved in the first quarter you expect to sustain operating profit margins around that level in the latter nine months of the year?

Our price increase is effective from April 1; and the raw material increase I think (indiscernible) time from Australia and Brazil, it takes one or two months from shipment. So the direct impact to our cost is starting from the end of the second quarter, right? So that means the second quarter price increases from April 1, but costs will be increased from the end of the second quarter. So the operating margin will be higher than (indiscernible) -- I think higher than the first quarter.

Okay. So the second-quarter operating profit margin will rise from the first quarter; and then the third quarter and the fourth quarter, obviously, everything else equal, will fall from the second quarter.

Yes.

Christina Vodi Would the average of those three quarters, taking into account the timing difference, do you expect that based on information that you have right now, in terms of your raw material pricing and your costing, do you anticipate that the average of those three quarters will be in line with what you achieved in the first?

At the moment, yes.

Christina Vodi Okay, thank you. The second question, one of my colleagues asked earlier relating to your treasury shares. I felt slightly confused about your answer. Right now, you have approximately 87 million shares in issue and approximately 9 million shares of treasury stock. You said that you plan to retain 3% of the outstanding shares for your ESOP program. Does that mean that you're going to retain all 9 million treasury shares for your ESOP program? Because that is approximately 3%.

The number of our outstanding shares is 87 million, right? So far we have 9 million treasury shares; and 87 million shares, by 3%, around 2.6 million shares, right?

Christina Vodi Okay; so you only to keep 2.6 million for the ESOP program. Okay, very good. In terms of your investment plans in India, when do you anticipate clarifying what you will be doing there? Do you have any sort of near-term schedule that you are working towards?

Our Indian project team is really hard-working on it at this moment. We also want to know when it will be started. But I think this is a megaproject of the POSCO and India as well. So I think this is very, very deep discussions between two parties. Right?

Christina Vodi Okay.

So it is going to take time.

So when you conclude that project, when you conclude your plans for that project, will you hold another conference call with your investors to explain what is happening there?

Sure. Yes, we will do (inaudible).

That would be very helpful. If you could give us some guidance on your plans for handling some of the noncore investments that you have within your balance sheet, it would be helpful if we could have some view of your management's medium-term strategy. For example, handling your investments in Powercom or SK Telecom.

Christina, this is Cho. Yes, we have some shares of the noncore stakes like the SKT, Hanalink (ph), and the Powercom. But we wrote off the Powercom already, and we don't have any interest in the communications business or the banking business at all. So we will dispose these noncore stakes in the future. But as you know, we don't hurry to dispose these shares at the present time.

For the noncore business, we will try to diversify the business outside of the steel, but those should be related with the steel business as well. For example, the CTS (ph) which utilized the unloading facilities. We can get some profit opportunity with the unloading of the raw materials for those who use the raw materials, such as the KEPCO.

We have interest in the LNG business, which can provide the LNG to POSCO for the source of the energy; at the same time we can transport business (ph) to provide the gas to outsiders as well. So even for the noncore business, it should be linked with the steel or steel-related business in the future.

That's great. I am pleased to hear that the principle of restricting noncore investments to those which are more related to steel is encouraging. Do you think it would be reasonable to expect these other communications or banking investments to be eliminated within the next one year? Is that an objective that you would like to set for yourself? I appreciate it is a decision that would need to be taken by the Board. But would that be the finance and investor relations recommendation to the Board?

I cannot suggest the eventual target, I mean the deadline. But I think it is not far from now.

Very good, thank you very much. I appreciate that is a difficult one for you to answer. Thank you (inaudible).

Renjan Martin (ph).

There's two questions, one relating -- this is (inaudible) Capital. Two questions, run related to the India project and the other related to your input costs and prices. First one, the news item that we have been reading is that, while the Indian government is happy for you to set up a steel plant and they are willing to give you a concession in nine ore mines for that, they are not willing to let you export iron ore from India to your other operations around the world. That is the only sticking point.

Is that a fact? And if, will you be willing to invest in the Indian project if you are not having access to that in all the rest of POSCO's operations?

What is your second question?

The second question is, the price increases that you are effecting, there has been news that there has been resistance in Europe with respect to some of the price increases for Aserod (ph) and so forth. But most of your phase (ph) are in domestic colliers, 75%. So what do you see as your ability to increase price?

I know you already effected one price increase, but that probably doesn't cover your input cost increase yet. So overall, do you see more price increases coming through? And do you see any resistance for that?

Let me start from your second question, price increase. Last year, we raised four times the price increase. It is very unexpected, price increase. I think if we already increased one time. But if the situation that we have to increase the price, and we will increase the price.

How do you decide that you have to increase the price? You're making extraordinary profits anyway.

For example, HR, a lot of the steel product is shot (ph) in Korea. So input price is going up, and we have to increase the price. We will increase the price to (indiscernible). That is what we did the last year.

On the same token then, if the imported hot-rolled price were to come down, that means your price can come down?

I don't think the HR input price has come down this year.

So your view of the market is that the current HR prices will not reduce? Because World Steel Dynamics recently put out a report saying it could drop 100 to $150 this year.

We don't think so.

You don't think so. Okay.

Regarding the Indian project, how did you know the Indian government negotiations is deteriorating (ph)? We never heard that. As we promised, we will have a conference call if everything is -- have some agreements.

What is your hurdle rate for the project? How do you decide whether you want to go ahead or not?

What can I say?

In terms of IRR, what do you think? Internally, what do you look at? Is it IRR or is it a strategic decision irrespective of the financial commitment?

We will have the feasibility study have the MOU, before the MOA, right? So after that study, everything is coming off.

In terms of timing, even if let's say today you were to sign on the dotted line, how long before you can start production?

For example, 3 million tons ore, I think it takes about 3 years. That is normal in the steel industry.

So in three years you could have your blast furnace up and running, including the iron ore mines and everything?

Yes, from the beginning.

Okay. Thank you.

Eddie Chen (ph).

Just a quick question on your comment about the imports of HR steel. There are some statistics which showed that financial fact -- despite I believe that China is a net importer -- China actually has been exporting some amount of HR steel and steel plates to Korea starting from late 2004. I was wondering whether you could comment on the trend of that now?

As well as your forecast for 2005, you are targeting a 20% increase in revenue. But your price increase so far is 7%; and then you have a 4%increase in volume. Does it mean that you expect a lot more shift in higher-end products for your portfolio mix? Thank you.

Currently, Korea imports about 6 to 7 million of HR from China, from Japan, mostly. But you have to understand that even though the import volume from China is increasing, the grade is not as great as that that is produced by POSCO. So we believe in the future there will be a so-called two-tier product segment. As long as we produce a quality HR product, we should not have to worry about selling our HR products to our end-users.

Okay. (technical difficulty) tell us which applications their imports are going into? If you could give us an idea? (ph) Thank you.

You mean the Chinese exports to Korea, the trend?

I mean the imports of HR steel from China, which applications do they tend to go into within Korea? Which end markets? Thanks.

It is mostly --as you know, when we produce slabs, some of them we sell it to the downstream rerollers; and some we use it internally. Most of our imports from China HR are used by domestic rerollers. So we don't exactly know the end application of those HR products. But they are definitely low-grade HR, not comparable to that of POSCO.

Okay, thank you. I've got a second question in terms of the revenue increase. Is it explained by the shift in the product portfolio?

Hello? (inaudible). As you said before, price increase is 7%; but it depends on the product mix. You have to consider what is the product. So if you sell more electric coshiator (ph) or something like that, it is very expensive compared to HRC or something like that. It is almost four times over HR. So you have to care about the product category, not the percent of price increase. You've got it?

Yes, that is what I was asking. Could you give us a sense of the change in the product portfolio this year?

We are really focused on high value-added product, not just a commodity such as HRC and flats (ph) or something like that one.

I appreciate that. So what is the breakdown of the high-value products this year you are forecasting, versus what you did last year? Thank you.

You meet our total sales of the higher value-added product?

That's right.

Last year we sold around 19% of the total, right? But this year we have a target to around 23%.

Total sales volume, not sales price.

(inaudible) Sales volume this year will be --?

It is not a price; it is a sales volume. (multiple speakers)

Thank you.

There appears to be no further questions at this point. (OPERATOR INSTRUCTIONS) From Singapore, Geoff Boyd.

First of all, a quick comment on that last question. I also think that he was asking about like if it's a value-add mix. But when you mentioned that the prices have only increased 10% this year, but that is based off of the ending price of last year; you have got to compare it to the average price last year. And the average price has gone up 20% or whatever. So I think it is actually not that big a change in the mix. I think it is more ASP driven.

But anyway, just on my question, I am quite interested in the Friday's bidding for this power facility. I am just curious, how badly do you think internally that POSCO wants this deal? How much of a premium are they willing to put on the deal relative to the other bidders? Because obviously if POSCO wants it bad enough, they can afford to buy it. But it's a question of, I guess, desire. What is the sense internally how important is this deal to POSCO?

You know, this is really just before the bidding, right? What can we say to you? After Friday, maybe we will let you know.

Okay.

It's really a sensitive time to say about the importance of the bidding, as you know.

Okay. Who within the management is driving this desire to be doing this deal? Is this driven from POSCO's affiliates? Is it driven from the top?

(indiscernible) management of POSCO, you know the energy is one more very important sector of the business related with the steelmaking business in POSCO. POSCO generates and commissions (ph) a lot of energy. So we are sure we have the core competence in the (indiscernible) business as well. We expressed a great interest for the (indiscernible) product of the KEPCO electric generation business a few years ago.

Like I thought when Mr. Lee came in power I thought that he sort of got rid of all the old past ideas of energy. I thought that the whole gen-co thing was sort of a thing of the past, of the old administration. I thought Mr. Lee was going in a different direction in terms of staying away from power and focusing on steel, but --

Geoff, you may well understand the business structure of the POSCO; and once again, I would like to -- the energy is well related with the steelmaking business. And we have the good know-how and the knowledge and the experience for the energy business.

In addition, we will operate the LNG terminal to distribute, to provide the gas to the POSCO and outside. We expect some positive synergy with this new project, LNG terminal together with the power generation business we will bid.

Okay. Okay. Thanks.

James McDonald.

From Hunter Hall in London. I just would like to know how much Chinese capacity is coming on for high-value products? How easy is it for them to move into that market? Could you also discuss what is happening with year-on-year or month-on-month demand growth for the high value-added products in China? Because I saw some weak (ph) data I think for February; but I think that was for overall steel consumption. Thanks.

You know the Bao Steel in China, their number four blast furnace will be operated from end of this month. The number four cold mill (ph) will be operating the third quarter of this year. That is the only, we can see, the high-value-added product is increasing in China.

That meaning (ph) is the number four CR mill can produce high-quality product like automotive sheet or something like that. But except Bao Steel, other second group like Ansam (ph) and the Boynsee (ph) Steel, we expect the expansion is only for commodity product capacity. Okay? So we don't see any significant increase of the high value-added capacity goods in China.

And on the demand side?

Supply and demand by monthly data, you mean?

Yes.

Mr. McDonald, does that conclude your question?

Sorry, I didn't hear the answer to that. Is there monthly data for demand in China for the high value-added products?

At this moment we don't have such detailed data with us.

Is it correct that overall steel demand has been quite weak for the last two months? Is that right?

The last two months, they became the net exporter. But if we see the detail, the flat -- the import is still bigger than the export. The rolled product is definitely bigger, higher; the export is bigger than the imported. So totally, the flip (ph) for the date (ph) have to increase, have to import from overseas. (indiscernible) the presentation (indiscernible).

Okay, great. Thank you.

E. Y. Lee (ph).

I have two questions. I know you have the plan to increase (indiscernible) cold-rolled steel capacity 400,000 tons in Korea this year. So can you give me an update for the investment plan?

Second concern is that about China's auto steel market. You just mentioned the Bao Steel will launch (ph) a new facility, new auto steel facility this year. The capacity is 1.8 million tons. So what do you think the impact of launching new facility of Bao Steel's total capacity? Because some analysts insisted that Bao Steel's capacity is almost 30% of China auto steel market size. So do you have the detail more about the China auto steel market size? That's my second question.

Please stand by. We are currently waiting for the call leader, because the telephone line has been disconnected. Just one moment. All participants, please stand by. The call leader's telephone line has been disconnected temporarily. Pardon me for the interruption. We have been joined by the call leader now.

Sorry about the interruption. We got cut off from the line, but we're back on line. So here is the team.

Your first question regarding the stainless capacity, the downstream capacity expansion, it definitely is not decided yet. Okay?

The second question, China, the Bao Steel auto capacity expansion, 1.8 million tons. I think that capacity is not enough to meet the demand. That is our forecast.

Do you have the detailed number about auto sheet demands in China?

Their production number is around 3 million to 4 million per year.

How about the demand?

Demand is now getting -- we heard it is now decreasing, because --

Decreasing?

Yes, (indiscernible) the competition in China, so the price is now decreasing.

Yes. Do you have the estimated forecast about China's auto steel demand?

We don't have that. But you know, the Bao Steel, year 2003, they produced 1.6 million tons of the auto sheet only.

Yes, but they will increase the production of auto sheet.

The same as POSCO did.

Okay, I see.

But we see this is really potential growth product in the future.

What do you -- about the impact of recently China's macroeconomic policy? China government wants to cool down their economic cycle, so they revised their interest rate, and they wanted the whole private sector squeeze the investment under construction, and a lot of the -- at property sectors (ph). So everybody is impacted the steel price. So (indiscernible) price will go down. What do you think about the impact of China's macro policy?

In the short term, that I think impacts a little bit to POSCO. But in the longer term, I think there is no problem at all. That is what we believe.

Where it is a positive (ph) to the steel business in China, as you mentioned, they controlling the heavy investment into the kettle (ph) or the real estate business. At the same time, they are very strict to permit a new project or the new capacity in the steel business as well, which can restrain the abrupt or the repeat (ph) increase of the steel capacity in China, which is expected to support the steel price with the balance of the supply and demand of steel.

Thank you very much.

I would like to report to the call leader, because there appears to be no further questions.

Great, thank you. Thank you very much, callers. Thank you Mr. Lee and the team. Congratulations to POSCO on their record performance last quarter, and we appreciate POSCO for offering this call. Thank you.

Thank you, sir. That concludes today's conference call. Thank you for joining.