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Baosteel gains beat forecasts

Author: HXJQTime: 11/29/2011 12:14:59 PM

BAOSHAN Iron & Steel Co, China's top listed mill, posted a 20-percent rise in second-quarter earnings on higher steel prices, but warned of uncertainties in the second half.

Net profit increased to 5.39 billion Yuan (US$789 million) in the past quarter, according to figures derived from its half-year earnings of 9.64 billion Yuan, or 0.55 Yuan a share, the company revealed yesterday. This beat median forecast of 4.9 billion Yuan in a Bloomberg analyst survey.

Baosteel and rivals had raised product prices to cover higher raw materials and energy costs amid robust demand from auto makers and shipbuilders. The Shanghai-based mill hiked prices by up to 20 percent in the second quarter.
"In the second half, there are more uncertain factors in the steel market," Baosteel said, citing rising prices for iron ore and coking coal, both used in steel making, as well as slowdown in demand from certain downstream users owing to government macroeconomic control.

Although steel prices kept rising in the first half, rise in costs were also larger than expected, so profitability decreased," said Everbright Securities analyst Zhao Xiang'e. "Mill earnings could face a squeeze in the second half."Zhao cut the full-year earnings forecast for Baosteel to 0.9 Yuan per share, from 1.1 Yuan made earlier this year. The weakening demand has forced Baosteel this week to cut prices for its cold-rolled steel products by nearly 5 percent for the fourth quarter, its first reduction this year. The cut underscores increasing competition, analysts said.

Baosteel, whose prices typically represent premiums to domestic market prices, has also started to adjust prices for some products on a quarterly basis rather than seasonally to better respond to fast changing market conditions.

Still, Baosteel said yesterday, domestic steel prices will remain stable in the second half, supported by high costs and global inflation.

Baosteel rose 1.29 percent to 6.28 Yuan before the results.