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Baosteel gives bleak first half outlook

CHINA'S top steel maker, Baoshan Iron and Steel Co, or Baosteel, said yesterday that it had managed to write down high-cost inventories of iron ore, the key ingredient in steel making.

But the first-half outlook is still bleak as steel prices stay low, while downstream demand hasn't yet been ignited and negotiations on iron ore term prices are still deadlocked, Vice President Chen Ying told an online briefing with investors yesterday.

The Shanghai-based company reported late Tuesday that net profit for the first quarter plunged 97.7 percent from a year ago to 89 million yuan (US$13 million), or 0.01 yuan a share, and warned of another big tumble in the first half as overcapacity drives down prices amid a slowing domestic economy.

Analysts also lowered their forecasts for Baosteel's 2009 earnings after the quarterly results.

Essence Securities Co said in a note yesterday that it forecast Baosteel's earnings per share at 0.32 yuan in 2009, down from a previous forecast of 0.41 yuan.

Baosteel managed to make money in the first quarter as it made enough writeoffs of high-cost inventories in the final quarter of last year, when it lost 6 billion yuan. Therefore raw material costs during the past quarter were lowered, said Ma Guoqiang, Baosteel's new president.

The company plans to produce 23.41 million tons of steel products this year, a drop of 180,000 tons, or less than 1 percent, from its output in 2008, he said.

In addition to sluggish demand, major steel mills also attributed poor earnings to high ore prices negotiated under annual contracts. Many mills have shifted to spot market purchases since the first quarter as spot prices have fallen.

Baosteel rose 2.12 percent to 5.78 yuan yesterday while the Shanghai Composite Index gained 2.78 percent.


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