The world's fifth-biggest steelmaker, which will have a new chief executive in March, plans to reduce investment by 14 percent this year to 3.7 trillion won ($3.4 billion) as it sees flat revenue growth after three consecutive years of profit declines.
A prolonged downturn in the steel industry shows no signs of letting up, hurt by China's excess capacity coupled with slowing demand in the world's top steel consumer.
POSCO faces a challenge of cutting higher debt following another round of cuts in credit ratings and fending off competition at home and abroad from Japanese and Korean rivals like Hyundai Steel.
October-December operating profit was 488 billion won ($450 million) on a parent basis that does not reflect earnings of affiliates, the company said.
The fourth-quarter profit was below an average forecast by 18 analysts polled by Thomson Reuters I/B/E/S of 557 billion won and compared with an operating profit of 379 billion won a year earlier.
POSCO said its product prices fell by 100,000 won per tonne last year from 2012, which hurt sales and profits.
The South Korean won's strength against major currencies eroded POSCO's repatriated earnings overseas and its export margins as Japan's Nippon Steel & Sumitomo Metal forecast a nearly four-fold jump in annual profit, fueled by a weaker yen.
This adds to woes of POSCO, once an industry star performer, which sees its domestic dominance waning as Hyundai Steel increases supply to affiliate Hyundai Motor.
POSCO earlier this month nominated Kwon Oh-joon, president and its chief technology officer, as its new chief executive to succeed Chung Joon-yang who previously led aggressive investments and acquisitions that left the steel giant with high debt levels.
Moody's and Fitch cut the credit ratings of POSCO in November and December, respectively, expecting a persistent weakness in the industry to cap POSCO's earnings improvements.
POSCO's shares, of which Buffett's Berkshire Hathaway Inc owns around 5 percent, ended down 0.5 percent prior to the release of the results on Tuesday. Its shares have fallen 9 percent this year, lagging the wider market's 4.7 percent drop.