POSCO leads steel shares' falls after Q4 warning

SEOUL (Reuters) - Shares of South Korea's POSCO (005490.KS: Quote, Profile, Research) dropped more than 7 percent and drove other steel shares lower on Wednesday, after the world's No.4 steelmaker warned of a grim business outlook due to slowing demand growth.

By 0200 GMT shares of POSCO plunged 6.7 percent to 361,500 won, while local rival Hyundai Steel (004020.KS: Quote, Profile, Research) fell 5.9 percent and Dongkuk Steel (001230.KS: Quote, Profile, Research) dropped 6.6 percent, versus a 2.4 percent decline in the broader market .KS11.

After the market close, POSCO warned on Tuesday that the fourth-quarter business outlook was seen tougher as the global financial crisis would slow steel demand growth, while higher input costs and a tumbling won currency would add further pressure. [nSEO134923]

"Its fourth-quarter profit will decrease by 25 percent from the previous quarter as input costs will rise, and it would be difficult for POSCO to raise steel prices amid weakening global prices," Chung Ji-yun, an analyst at Hi Investment & Securities, said.

Concerns about the financial burden of POSCO's bid for Daewoo Shipbuilding (042660.KS: Quote, Profile, Research) also weighed on its shares after POSCO lost its bidding partner GS Holdings (078930.KS: Quote, Profile, Research) due to differences over the acquisition price, but said it would go ahead with its plan to acquire the world's No.3 shipbuilder. [nSEO219539]

Media reports have speculated that POSCO may have offered nearly 7 trillion won ($5.8 billion) for a 50.4 percent stake of Daewoo, a hefty premium to the stake's current market value of 2.1 trillion and a factor causing some investors to worry that it may be overpaying at a time when the industry has already peaked and is set for slower growth.

Amid concerns that global steel prices, already down more than 20 percent from this year's peak in June and July, may fall further, shares of other Asian steel firms also plunged, with Japan's Nippon Steel (5401.T: Quote, Profile, Research) and JFE (5411.T: Quote, Profile, Research) falling 11.5 percent and 7.5 percent respectively, and China's Baosteel (600019.SS: Quote, Profile, Research) dipping 4.2 percent.

(Reporting by Miyoung Kim; Editing by Jonathan Hopfner)