UPDATE 1-China's Baosteel Q2 Profit Soars, Outlook Less Rosy

SHANGHAI, Aug. 30 -- China's Baoshan Iron & Steel (600019.SS: Quote), the country's biggest listed steelmaker, warned on Friday that steel demand would slow in the second half, despite its second-quarter profit nearing pre-financial crisis levels.

"Domestic steel demand growth from downstream industries including autos and home appliances will slow, together with the the removal of export tax rebates from July 15, meaning the company will face twin pressures from both high imported iron ore costs and sliding steel prices in the third quarter," it said in a results filing to the Shanghai Stock Exchange.

Baosteel, the pricing leader on the domestic market, said this month it would keep its September prices unchanged, reflecting a cautious approach as domestic spot steel prices recover after a long period at low levels.

The Shanghai-listed arm of Baosteel Group, the country's second-biggest steel mill by output, saw its April-June net profit rise more than sevenfold on a year ago to 4.12 billion yuan ($606 million), according to Reuters' calculations based on the first-half earnings release, almost exactly in line with the expectations of five analysts polled by Reuters.

The strong profits for the first half were largely on account of higher carbon steel product prices, Baosteel said.

"Steel prices will be mainly supported by persistently high iron ore costs, rather than being demand-led, meaning steel companies will not be likely to see high profits again in the third quarter," said Su Lifeng, a steel analyst with Guoyuan Securities.

Baosteel said it expected its net earnings in the next reporting period, for the first nine months of the year, to rise 140-160 percent from a year earlier, compared with over 1,100 percent in the first half, suggesting profit growth could slow dramatically in the third quarter.

Baosteel competes with South Korea's POSCO (005490.KS: Quote) and Japan's Nippon Steel (5401.T: Quote) to supply China, the world's top steel consumer and producer.

Baosteel's domestic rival Wuhan Iron & Steel (600005.SS: Quote) posted a 91-percent rise in its first-half net profit to 963 million yuan, as its steel production rose nearly 30 percent in the period to 8.04 million tonnes.

Its foreign rivals have also recovered. Nippon Steel, the world's fourth-biggest steelmaker, returned to profit in April-June, while POSCO, the world's No. 3 steelmaker, posted its second-best ever quarterly profit for April-June.