3Q 2017 POSCO Earnings Release Q&A Transcript October 26, 2017 Q. It seems that 3Q earnings is lower than expected as price increase was not sufficient. What was the reason and how do you see the outlook for 4Q price negotiation with clients by each industry?

A. In 4Q 2016, raw material prices surged and steelmakers were able to lift steel price, which was maintained until 2Q. In 2Q, raw material prices went down, and as a result for some products, price adjustment was made. Especially, monthly-based contract price was slightly decreased for POSCO. As for STS, as Ni price came down from USD 10,300 to USD 9,200, the 300 series of stainless steel prices also declined. Normally, there is about a quarter lag between changes of POSCO's price and Chinese domestic price. Chinese price hiked in 4Q 2016 and remained high until 1Q 2017 and went down in 2Q. Our price increased from 1Q to 2Q this year, and decreased in 3Q. In 4Q, outlook for domestic demand industries is not so positive, but the global demand is quite sound. As China will start reduction of steel production for winter period earlier than planned, and 3Q price hit the peak in the second week of September, the environment will be favorable for POSCO. By fully reflecting the current trend, we will do our best to better perform in 4Q.

Q. After the merger of Wuhan and Bao, Anshan and Benxi will follow suit. As Chinese steel mills become larger in size, competition will be heightened for POSCO. What is the strategy responding to this market trend? Also, could you give us some color on the impact of production cut in Hebei and other areas?

A. As China is strongly committed to supply reform, steel prices are staying at a high level,

which contributes to the improved business performance of POSCO and Chinese steelmakers. Moreover, small-sized mills and induction furnaces are dramatically decreasing. This all led to a strong price movement, and we see it will continue with the government's decision on production cut during the heating period. POSCO's strategy to a heightened market competition is to develop more premium products including auto sheets, which we started 10 years ago. By advancing our product mix, we can outperform our peers. We now have a product category of WP+ (World Premium Plus) such as Giga Steel and high Manganese steel that is even more profitable than World Premium products. Besides, to secure domestic market share, we provide solution marketing to our customers so we can replace imports and non-ferrous materials.

Q. Due to production reduction in China, the steel cycle is on upward trend. Next year's production cut volume will be important. Also, demand increase is essential, but it seems like there is not a meaningful signal for this. What is your outlook for market environment for the coming year?

A. There are several factors we have to consider in determining price outlook. Heating season production cut will be done until February next year. Actual reduction volume needs to be considered, and the demand industries enter off-season in winter. We also have to take into account of raw material prices. With all these factors blended, we expect that there would not be a large difference from current prices. For the global steel demand, we forecast 2% growth led by the U.S., Europe and China. Prices will show a high level in 1H and an adjusted lower level in 2H 2018.

Q. Consolidated earnings was boosted by overseas steel business. As for POSCO SS- VINA, when do you expect it will turn profit and what is the current utilization rate? What is your outlook for Brazil CSP business? What is your plan on investment in downstream line in PT.KP?

A. SS-VINA shows a normal utilization rate as of now. On a monthly basis, it turned profit

in September. Next year, we forecast an operating profit for the whole year. The reason behind the improved performance is expanded sales volume after AD ruling on Chinese section steel and stabilized price. In terms of CSP, production and sales are both on the right track. This year, total sales will exceed 2.7 million tons. However, when it comes to profit/loss, it has to be considered that this plant has just begun operation. There is a cost burden and we need more time for the slab price to recover. According to our projection, from next year, internal cost reduction and price increase will make a positive impact on the bottom line. With PT.KP, we are preparing for HR and CR lines. Once the HR plant is finished with construction, it will be merged with PT. KP. The progress ratio is 30% for the HR line, and it will be completed in 2H 2019. We are discussing with our partner on CR line. We will announce the plan when it is finalized.

Q. The size of coal mine closures in Shanxi and other regions in China is getting larger. Due to the environmental restrictions, coal price is increasing. What is your forecast for the coking coal price?

A. When we released our forecast of this year's iron ore and coking prices, we viewed strong 1H and weaker 2H. After peaking in September, the prices are declining. As steel production is being reduced in Tangshan, coke-making plants are also reducing utilization rate at 50%. Although this signals a supply contraction, it would cause a resumed production from previously closed mines and existing mines' production increase that will hold the price from going up. In 4Q and onward, prices will be lowered in the longer term. If commenting on an one-off factor, Australia's rainy season and Canada's winter could affect the market temporarily in December. As coal price is staying at USD 170 to 180 per ton, which is sufficient enough for miners to make profits, many suppliers will restart production in 2018. Our forecast is below USD 160 to 180 per ton.

Q. Pricing scheme for hard coking coal was changed to index-based. Is it also the case for semi-soft and PCI?

A. From 2Q this year, benchmark system for hard coking coal was discontinued. For semi- soft and PCI, we are still maintaining benchmark, index and spot-based system combined. The portion of each system varies depending on the market situation. We try our best to lower input cost by optimizing the mix.

Q. Needle-coke price for electrode has skyrocketed. What is the impact on POSCO and how big is the volume you purchase?

A. We procure 5,000 tons of electrodes, amounting to KRW 15 billion. Electrode price is soaring as Chinese steel mills' utilization rate is going up and environmental regulations are getting tougher. We expected such price increase in advance and made an annual contract with Japanese suppliers in cooperation with SS VINA so the price impact was minimized. The strong price will continuously be seen, but POSCO's purchasing volume is relatively small to be largely affected by the price increase.

Q. Could you explain measures to improve ROE if you have?

A. We expect that ROE will be greatly improved compared to the last year although POSCO's ROE is still lower than other global steel companies such as NSSMC, Baowu and ArcelorMittal. The main reason is that we have focused on reducing debts to strengthen financial soundness, but it leads to a lower capital turnover ratio and leverage ratio. The first priority for enhanced ROE would be to increase net profit. To achieve this, we will continue to strengthen core competitiveness by advancing our WP+ strategy. Also, we will repay a high interest debt and reduce non-profitable assets. With the excess cash in hand, we will consider to increase returns to shareholders in the long term.

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