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Print(Reuters) - Asian steel giants POSCOand Baosteel are set to report solid profit growth for the July-September period, but falling steel prices and a weak global economy will hit earnings in the coming months.
However, Japanese firms led by Nippon Steel and JFE are likely to show another drop in earnings as they were slower than regional rivals in passing through rising raw material costs to customers such as Toyota Motor.
"Deepening uncertainty over the global economy and its impact on steel consumption are far outweighing steelmakers' efforts to stabilise the supply-and-demand situation with output cuts," said Jung Ji-yun, an analyst at Hi Investment & Securities.
Steel prices have started to ease after soaring to record highs earlier this year thanks to robust demand from emerging markets and China, and steel firms are weighing output cuts to shore up prices amid weakening demand from automakers, construction firms and appliance makers.
Concerns that demand will slump as economies slow have sent shares of global steel companies into a tailspin, with China's Baosteel and Japan's JFE falling more than 50 percent so far this year.
"Spot prices are falling from all-time highs in most regions and we believe steel companies are likely to show strong near-term earnings but guide to lower earnings and falling margins," Citigroup said in a report this week.
POSCO, the world's No.4 steelmaker, will kick off the sector's reporting season on Tuesday, followed by bigger rival Nippon on Oct. 29 and JFE on Oct. 30.
POSCO is likely to show a stellar performance with a 49 percent net profit rise in won terms, but the growth rate may have slowed sharply from the April-June quarter as the impact of a recent deal to buy iron ore and coking coal at nearly double and triple previous prices started having a full impact on its bottom line.
In U.S. dollar terms, its net profit likely slipped. The won has lost about 34 percent of its value against the dollar so far this year.
Investors will focus on POSCO's business outlook as evidence of a demand slowdown so far has been mixed. Indian mills are running at full capacity and plan to import more to meet strong demand, and Korea's Dongkuk raised ship plate prices by 12 percent, but Chinese firms have cut output and prices.
Germany's ThyssenKrupp also said last week it was confident about steel outlook as it sees strong demand from Asia, emerging market and the Commonwealth of Independent States.
In Japan, the chairman of Nippon Steel told a newspaper on Wednesday that global steel demand growth will slow next year to less than 5 percent, while the World Steel Association sees steel demand growing above the rate of global GDP growth next year.
Steel exports from China have risen, exacerbating the fall in global steel prices, as China's domestic steel prices dropped nearly 20 percent from this year's peak, and producers are also cutting output to boost prices.
They are joining industry leaders such as ArcelorMittal, which said last month it may cut output by 15 percent, and Corus, which is "adjusting" production as demand growth slows.
But efforts to tighten supply amid weakening demand may give little boost to flagging prices, as steel majors such as Nippon, JFE, POSCO and ThyssenKrupp have said they were not considering a production cut.
"The key will be how strongly China and emerging market can perform to support global steel demand," said Jung at Hi Investment & Securities.
($1=100.17 Yen) ($1=100.17 Yen) ($1=6.813 Yuan)
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