Steelmaker POSCO’s (NYSE: PKX) advantage over its rivals is three-fold. First, demand for steel in its home market of South Korea–which it dominates–is robust, as that country builds out productive capacity and its cities grow. That’s clearly demonstrated by the relative strength of the company’s prices for its benchmark products, which have fallen less than 4 percent from their peaks earlier this year.

In addition, the company continues to run its factories at 100 percent of capacity, with no plans to shut down any production. That’s a stark contrast to rivals such as ArcelorMittal (NYSE: MT), which this week announced plans to shutter a sizeable chunk of its European capacity. South Korea currently accounts for nearly 60 percent of POSCO’s total demand, a percentage that’s likely to remain high even as the company expands its reach throughout Asia.

Source: Korea Iron & Steel Association

POSCO’s second advantage is being part of a chaebol–a dominant South Korean conglomerate–that includes a power generation company and parent company with deep pockets and extensive government contacts. Synergies between the various parts of the greater company have held down electric power costs that are a huge part of steel production costs. Government connections hold immense benefits in keeping labor relations steady, blunting another potential threat to controlling costs in a tough environment.

And the company is never short of money to finance expansion, technology improvements or efficiency measures. Management announced it will reduce its capital expenditure budget by 18 percent to reflect expected slower growth in global steel demand. The company, however, will still spend some USD5.2 billion globally, a figure that few rivals can match in a weakening market.

Over the next 12 months, POSCO expects to shave USD1 billion off annual operating costs, even as the company continues to expand. That leads us to the company’s third competitive advantage: A growing ability to produce its own inputs, thanks to an effort to expand global holdings of natural resources, particularly of metallurgical coal.

The company raised its self-sufficiency in this key input to 31.9 percent of its needs. That’s up 3.6 percentage points over the past year and should continue to rise. Rising self-sufficiency translates into a huge cost advantage over major rivals, which must purchase in an increasingly choppy and competitive global market.

POSCO’s high-potential Krakatau project in Indonesia demonstrates its ability to control costs while ramping up output, using the strength of its chaebol partners. The company, however, has extensive growth projects in place in China, India, Vietnam and Mexico, with the capability of boosting annual productive capacity to more than 49 million tonnes of crude steel by 2015.

That’s about 30 percent more than the third-quarter production rate. And it adds up to massive profit growth going forward, even in the unlikely event that steel prices don’t recover to early-2011 levels.

POSCO isn’t wholly immune from the weakness in the current economic environment. The cut back in capital spending is directly related to flat third-quarter revenue growth on a sequential basis. Higher costs and weaker prices crimped profit margins to 7.7 percent and took return on equity down to 2.3 percent. The drop in the Korean won versus the US dollar also depressed profit, as it added to the won price of needed resources.

Management’s announced cost cutting measures can offset a good part of these pressures. But speaking at the company’s third-quarter conference call, senior vice president for finance Tong-Wook Shim sounded a cautionary note. He said the fourth quarter would bring some severe challenges and generally steered clear of any statements that would indicate a near-term boost in earnings growth.

The flip side of that is that low expectations are far easier to beat than lofty ones. And with POSCO shares down some 25 percent this year, this caution is definitely built into the stock–few are paying up for the company’s superior long-run potential in what’s still a rapidly growing and essential industry.

There is a strong likelihood that we’ll see this stock take out its old 52-week high of USD118 on the NYSE in the next six to 12 months. Meanwhile, it’s a strong buy up to USD90 for those who can handle some near-term volatility in pursuit of big returns.