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South Korea's Posco to stick with Myanmar gas business

Steelmaker says Q1 operating profit soars amid stimulus-induced price rises

South Korean steelmaker Posco is sticking with its gas business in Myanmar.

SEOUL -- South Korean steelmaker Posco said on Monday that it will continue to operate a gas field business in Myanmar as it announced that first quarter operating profit more than doubled thanks to rising steel prices amid strong global demand and production cuts in China.

Posco, South Korea's largest steelmaker, said this month that it was cutting its coating business's ties with Myanmar's Myanma Economic Holdings Public Co. due to its relations with the military junta. The military has received widespread international condemnation since it took over the Southeast Asian country on Feb. 1.

But Posco said money it pays for the gas field business in the form of profit-sharing with Myanmar's state oil and gas company -- part of the consortium with Posco -- goes to the country's finance ministry, not the military. Posco also said the business is important for the daily life of Myanmar's people, as 20% of the gas is supplied to domestic market.

"We don't think that the gas field business is connected to the military junta," Jeong Joon-sung, a Posco director, said on a conference call with investors.

Posco has been in the business for two decades through Myanmar electric power company RpIR. Most of the gas goes to China and India.

Human rights activists have urged Posco to stop the gas business, saying its partner, Myanmar Oil and Gas Enterprise, is a key financial source for the junta.

People's Solidarity for Participatory Democracy, an activist group in Seoul, said that Posco pays 15% of its profits in dividends to MOGE through the gas field business, and the total amount of the payment reached more than 200 billion won ($180 million) in 2018.

"Posco has relations with Myanmar's military corporations and shares profits with them," PSPD said in a statement. "Posco should stop letting the money it pays flow into the Myanmar military."

Posco International, an affiliate of Posco which runs the gas field business in Myanmar, said that civic groups misunderstand the structure of profit payments in the business.

"There are many companies in the consortium including us, MOGE, Korea Gas Corp., and India's state gas company," said Kang Pil-seung, a spokesman for Posco International. "The payment automatically goes to a [Myanmar] state bank by the agreement."

Regarding MEHL, Jeong said that Posco is in talks with the company on "how to end the business."

For its January-to-March earnings, Posco said operating profit jumped 120.1% to 1.6 trillion won ($1.4 billion) from the same period in 2020, with sales rising 10.5% to 16.1 trillion won. Net profit, meanwhile, soared 162% to 1.1 trillion won.

Quarter-on-quarter, operating profit rose 79.8%, while sales increased 5.3% and net profit climbed 55%.

Posco attributed the better-than-expected results to strong demand around the world as countries implement economic stimulus packages to address the effects of the coronavirus pandemic.

"Steel-makers' supply cannot meet demand as the global economy is rebounding thanks to stimulus policies by countries," said Kim Young-joong, a Posco vice president. "Automakers also hit bottom last year and demand from them is expanding."

Kim said Posco expects strong demand from the auto sector in the second half of this year, even as he acknowledged that carmakers are struggling with a shortage of key semiconductors.

Posco also cited production cuts of between 27 million and 30 million tons by most Chinese steel-makers this year -- as the country aims to reduce carbon emissions -- as another factor that will affect its performance.

Analysts say crude steel production in China will decrease by 2% to 3% this year considering Chinese steel-makers' plans to reduce output.

"The [Chinese] government will push for strong regulations for the first one or two years," said Park Sung-bong, an analyst at Hana Investment & Securities. "Lowering carbon emissions has become a key policy of the government."

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