Nippon Steel seen trimming 2007/08 profit target

TOKYO Feb 20 (Reuters) - High cost pressures will likely force Nippon Steel Corp (5401.T) to trim its full-year profit forecast, causing it to report its first dip in annual profit in four years, industry sources say.

The world's second-biggest steelmaker is to revise its earnings outlook on March 6 for the year ending March 31.

"High freight costs are giving Nippon Steel a tough time," said Takashi Aoki, vice president at Mizuho Asset Management.

Freight costs .BADI hit a record high in November, weighing on Nippon Steel's January-March earnings. High steel scrap prices are also squeezing its profit.

Nippon Steel sees annual pretax recurring profit of 600 billion yen ($5.6 billion), up 0.4 percent and a record for a fourth consecutive year. Last month it reported an 11 percent fall in quarterly profit, citing higher cost increases than expected.

Steel analyst Atsushi Yamaguchi of UBS recently cut his profit estimate to 591 billion yen. Kazuhiro Harada of Mitsubishi UFJ now sees 590 billion yen.

Force majeure declared last month on shipments of coking coal in Australia, a major supply source for Japanese steelmakers, is forcing the companies to turn to the spot market, where prices are about triple those in their term contracts.

That, combined with a 65 percent rise in term prices of iron ore agreed this week, will batter their April-June earnings.

Most analysts believe, however, that Nippon Steel and other major Japanese steelmakers will pass on most of the higher costs on to end-users by the end of March 2009 as Japanese steelmakers have an edge in both price and quality.

Market sources said JFE Holdings Inc (5411.T), the world's third-biggest steelmaker, recently won a 35 percent rise from South Korean shipbuilders for thick plate for April-September shipment.

But tough price talks are expected with automakers, and some analysts say steelmakers may be unable to fully pass on costs to users. (Editing by Michael Watson)