Posco’s new chief executive says the next three years will be “very difficult” as he looks to turn round the South Korean steelmaker’s profitability amid a weak global steel industry.

Kwon Oh-joon, who last month took the helm at the world’s fifth-largest steelmaker by sales, told the Financial Times that he would step up plans to boost profits by selling non-core assets this year.

The 64-year-old chief executive will also look to float several of the company’s subsidiaries and reduce its majority shareholdings in others.

Mr Kwon, formerly Posco’s chief technology officer, wants to more than double the steelmaker’s operating profit margin to 10 per cent over the next three years following years of decline under the former chief executive, Chung Joon-yang.

Since 2008, Posco’s operating profit margin has fallen from 17.2 per cent to 4.8 per cent in 2013.

“The main challenges we have to deal with . . . are increasing the profitability and also improving the financial soundness of Posco,” said Mr Kwon. “In the next few months, we have to find the most urgent business areas which we have to get rid of.”

The steelmaker, in which Warren Buffett’s Berkshire Hathaway holds a stake of about 5 per cent, has spent the past five years expanding rapidly through acquisitions.

It has made investments in Canada, Australia and Africa, and last year started production at its new integrated steel mill in Indonesia.

“We have spent a lot of money on investments. For the last five years, we spent about $25bn on new facility investments. My job is to strengthen the business,” said Mr Kwon.

However, Mr Kwon said it would take time for many of these recent investments to make a profit, with several at an early stage of production or still under construction.

“For those reasons, I think the next two to three years will be a very difficult time for Posco,” he said.

The restructuring comes amid the backdrop of a worsening outlook for the global steel industry, which is likely to hinder Posco’s efforts to boost profitability.

Global steel demand is expected to see lower growth this year, according to the latest forecasts by the World Steel Association, the industry’s main international body.

Demand from China, the world’s biggest consumer of steel and Posco’s largest export market, is expected to rise 3 per cent in 2014 to 721m tonnes, down from a growth of 6.1 per cent last year. In 2015, growth is expected to slow further to 2.7 per cent.

“The global steel industry is in a chronic margin squeeze situation right now,” said Mr Kwon. “We had some expectation in the global economy that the second half of this year would be much better. But I don’t really see the signs yet.”

He admits Posco’s operating profit margin is unlikely to return to pre-crisis levels.

“When our operating profit margin was more than 20 per cent, we were enjoying the big surge of steel consumption in China. I’m not sure whether a similar situation will come in the near future. If it comes, it could be India or Indonesia, areas where a large population exist, but this is not so clear,” said Mr Kwon.

With weak demand and oversupply unlikely to change any time soon, Posco plans to focus on further developing its technologies to create high-value advanced steel that can compete with rival materials such as aluminium and composites.

The company will also hedge its bets by expanding certain parts of its non-steel businesses – materials and energy – areas that Mr Kwon’s predecessor expanded significantly in recent years.

While a lot of Posco’s non-steel business would be restructured and sold off, Mr Kwon said it had picked out a few strong industries for further investment. Top of this list was its core materials business, with a particular focus on lithium and nickel.

The latter is a key ingredient for making stainless steel and Posco has been working on developing technology that could reduce the production cost by as much as 20 per cent.

“If you look at the cost of production of stainless steel, 50 per cent of it comes from nickel cost. If we can reduce that by 20 per cent then . . . we can control the global market,” said Mr Kwon.

• [Editor:Juan]