Top steelmaker Baoshan Iron & Steel Co. Ltd. is expected to post its fastest pace of quarterly earnings growth in two years, riding a US$3.3 billion asset infusion from its parent and resilient margins.

But Baosteel, which vies with Nippon Steel Corp. and POSCO to supply the world's biggest steel market, could see earnings growth slow sharply through the rest of 2005 after slashing fourth-quarter prices amid a domestic glut.

Baosteel's second-quarter net profit is expected to surge 83 percent to 4.1 billion yuan (US$506 million) from 2.24 billion yuan a year ago, according to a median of forecasts by analysts. The results are due Wednesday.

That would beat a China-driven 38 percent rise in quarterly earnings at South Korea's POSCO.

"The first half was a turning point. Earnings growth will slow significantly as steel prices weaken both at home and abroad," said Yong Zhiqiang at Haitong Securities.

"Expansion and solid prices have boosted earnings."

China's insatiable demand for steel has driven up prices in the past year. But it also pushed iron ore prices 71.5 percent higher and more than doubled coking coal prices.

That demand is why global firms such as Mittal Steel Co. and Arcelor S.A. have either bought into the country's mills or plan to do so.

This year, China could produce a steel surplus equivalent to Germany's annual capacity, according to a government think-tank.

Baosteel said last week it would slash prices on core products by about 10 percent in the final quarter, bringing the world's No. 6 steelmaker into line with POSCO, which cut prices in June, and domestic firms such as third-ranked Wuhan Iron & Steel Co. Ltd., which did so for the third quarter.

But it could wipe over 500 million yuan from second-half net income, one analyst estimated.

(Shenzhen Daily August 29, 2005)