UPDATE:Baoshan Iron & Steel: Don't See 1Q Loss Amid Weak Market

   (Adds Baoshan chairman's comments on steel prices and 2009 performance.) 
 

BEIJING -(Dow Jones)- Baoshan Iron & Steel Co. (600019.SH) doesn't expect to post a loss in the first quarter despite difficult market conditions, General Manager Fu Zhongzhe said Monday.

Baoshan Iron, the listed unit of China's biggest steelmaker by output, said Friday its 2008 net profit fell 49% to CNY6.46 billion ($946 million) on weak steel demand and high costs.

The company expects revenue of CNY145.7 billion this year, down 24% from CNY200.64 billion last year due to market uncertainties, said Fu.

China's steel firms will face challenges in the long run, including an overcapacity problem and high costs, said Baoshan Iron's top executives during an online investors' briefing.

Baoshan Iron began cutting production in December, and it will adjust output based on market conditions, Fu said.

He didn't give details of the production cuts, but analysts estimate that Baoshan Iron has reduced production by about 20% because of a drop in steel demand from local and overseas customers.

"Steel prices will be volatile at a relatively low level in the second quarter," Baoshan Iron Chairman Xu Lejiang said at the briefing.

Baosteel Group Corp., which represents Chinese steel mills, is still talking with Companhia Vale Do Rio Doce (RIO), BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RTP) to determine the annual iron ore benchmark prices, said Fu.

Fu said he expects iron-ore prices to drop this year, but he didn't give a specific forecast. Analysts expect a price drop of at least 30% this year, after prices nearly tripled since 2003.

Baosteel said it will also withdraw from a US$2.6 billion joint venture with Handan Iron and Steel Group, which merged with Tangshan Iron & Steel Group last year. It didn't give a timetable for the withdrawal.

Baosteel signed an investment agreement with Handan Iron in 2007 to build a 50-50 joint steel mill, which will have an annual capacity of 4.6 million tons.

"We will sell our stake to Handan Iron," said Xu during the briefing, without giving a reason for the withdrawal.

Analysts have said the merger between Handan Iron and Tangshan Iron prevents Baosteel from expanding its share of the northern China steel market as planned.

"The investment withdrawal may not be very easy. This joint venture isn't worth much under current market conditions, and Baosteel is unlikely to get a full return," said a metals analyst from a domestic brokerage.

Fu said Baoshan Iron will invest in mining projects when the timing and conditions are right, without elaborating.

-Juan Chen contributed to this story; Dow Jones Newswires; 8610 6588 5848; juan.chen@dowjones.com

(END) Dow Jones Newswires

March 30, 2009 07:47 ET (11:47 GMT)

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