China's Baosteel Q1 net profit down 22 pct

Fri Apr 29, 2011 2:31pm GMT

* Baosteel Q1 net 3.07 bln yuan vs 3.93 bln yuan yr ago
* Sector outlook remains severe
By Ruby Lian and Kazunori Takada

SHANGHAI, April 29 (Reuters) - Baoshan Iron & Steel (600019.SS: Quote), China's largest listed steelmaker, reported a 22 percent fall in first-quarter profit as surging raw material costs and overcapacity squeezed margins.

The company, usually referred to as Baosteel, said Japan's devastating earthquake and tsunami last month had triggered uncertainties in the market.

"The steel sector will continue to face a severe outlook due to a tightening credit environment, rising supply (of steel) and slower growth in sectors such as autos," it said late on Friday.

Baosteel, the traditional pricing leader for the Chinese market, said earlier this month it will cut prices of its main products for May, after buyers trimmed orders in recent months in the face of high inventories and weak demand. It will be Baosteel's first price cut in nine months.

Baosteel posted a net profit of 3.07 billion yuan ($472 million) during the January-March period versus 3.93 billion yuan a year ago.

Three analysts surveyed by Reuters forecast an average of 0.19 yuan per share in earnings, which translates to a net profit of 3.33 billion yuan.

EPS fell to 0.18 yuan against 0.22 yuan a year ago while revenue rose to 54 billion yuan versus 44.3 billion yuan.

Prices of iron ore, a key steelmaking ingredient, surged by around 12 percent from January to mid-February, according to three major price indexes, eating into steel mills' profit margins.

Industry data showed China's daily output over the first 20 days of April stood at 1.918 million tonnes, translating to 700 million tonnes on an annualised basis, or a gain of 12 percent from a year ago.

Chinese mills produce nearly half of the world's steel.

Baosteel's Asian peers POSCO (005490.KS: Quote) and JFE Holdings (5411.T: Quote), reported a quarterly drop in net profit, while Nippon Steel Corp (5401.T: Quote) suffered a net loss.

Baosteel's parent, Baosteel Group, was the world's No.3 steel producer in terms of output last year, behind ArcelorMittal SA (ISPA.AS: Quote) (MT.N: Quote) and Hebei Steel.

Shares in Baosteel closed at 6.90 yuan on Thursday and were suspended from trade on Friday. They have gained 8 percent so far this year, outperforming a nearly 4 percent gain in the overall Shanghai index .SSEC.

($1 = 6.502 Chinese yuan)

(Editing by Lincoln Feast and Erica Billingham, sourced Thomson Reuters)