WRAPUP 3-Nippon Steel, JFE Q1 profit down; Nippon hikes f'cast

* Japanese steelmakers post lower earnings

* Steelmakers believe they can raise prices, pass on costs (Adds Tata Steel results)

By Yuko Inoue

TOKYO, July 31 (Reuters) - Japan's biggest steelmakers, including the world's No.2 Nippon Steel Corp (5401.T), posted lower quarterly earnings but raised their full-year forecasts as they increase prices and pass on input costs to customers such as automaker Toyota Motor Corp (7203.T).

The companies, which also include the world's No.3 JFE Holdings Inc (5411.T), said they would seek further price hikes in the second half to cover rising costs of materials such as metallurgical coal and iron ore.

Global demand for steel has remained strong so far this year, boosting prices, despite soft economic growth and turmoil in financial markets. The weak U.S. housing sector has not affected demand, since that market is not a major steel purchaser.

"There is a chance we will see another upward revision (in Nippon Steel's earnings)," said Shinya Yamada, an analyst at Credit Suisse. "I don't think they have fully factored in the impact of price hikes."

This week, top-ranked ArcelorMittal (MT.N)(ISPA.AS) posted record quarterly net profit of $5.84 billion, way above analyst expectations, after passing on rising raw materials costs, and U.S. Steel Corp (X.N) also beat forecasts on surging prices.

India's Tata Steel, (TISC.BO), ranked sixth in the world, also posted a forecast-beating 228 percent rise in quarterly net profit for its Indian operation on Thursday.

Tata Steel said a better product mix and higher volumes helped margins. It did not give results from global operations, which include Anglo-Dutch firm Corus Group bought for nearly $13 billion last year.

South Korea's POSCO (005490.KS), ranked fourth in the world, this month beat forecasts with record quarterly net profit, and increased its earnings targets to reflect a sharp rise in its benchmark steel prices.

But delayed talks with buyers on 6-month and annual contract prices battered Japanese companies' April-June results as prices stayed low while the cost of iron ore nearly doubled and coal trebled.

Industry experts expect steelmakers to eventually raise prices by nearly 40 percent this business year and pass on most of the high raw material costs.

Nippon Steel said its quarterly profit fell 3 percent on spiralling costs, but it boosted its full-year forecast by 20 percent to reflect higher long-term contract prices so far agreed with carmakers and shipbuilders.

Nippon Steel, a major beneficiary of strong worldwide sales by Japanese carmakers, booked 144.1 billion yen ($1.3 billion) in pretax recurring profit during the three months.

It now sees profit of 450 billion yen for the year to March 2009, instead of 370 billion yen announced three months ago. That would be down 20 percent from a year ago and was still short of an average 509.48 billion yen estimate given in a poll of 11 analysts in Reuters Estimates.

"We think the current price level is still not enough to cover rising raw materials costs," Kiichiroh Masuda, Nippon Steel's executive vice president told a news conference.

"The trebling in price of hard coking coal was a huge surprise to us. But I was more surprised by quadrupling of price of semi-soft coking coal today," he said.

Nippon Steel and other big Japanese makers on Thursday agreed with mining group Xstrata Plc (XTA.L) to pay $240 per tonne for the coal this business year, against $64 last year.

PRICING POWER IS KEY

JFE said its April-June pretax recurring profit fell 23 percent. It sees 450 billion yen ($4.2 billion) profit for the year to March 2009, down 10 percent and below an average estimate of 477.06 billion yen in a survey of 12 analysts.

JFE had previously declined to forecast full-year profit as price talks with clients had stalled.

Sumitomo Metal Industries Ltd (5405.T) also raised its full-year profit forecast to 250 billion yen, up 19 percent from its previous forecast, after posting a 1.1 percent fall in its quarterly profit.

Shares in Nippon Steel climbed 14 percent in April-June, in line with Tokyo's steel sub-sector index .ISTEL.T, while JFE gained 21 percent. (Editing by Kim Coghill and Erica Billingham)