Nippon Steel Q1 profit down 3 pct, raises outlook

TOKYO, July 31 (Reuters) - Nippon Steel Corp (5401.T) said its quarterly profit sank 3 percent on spiralling costs but boosted its full-year forecast by 22 percent after striking deals to raise long contract prices from some of its users.

The world's No.2 steelmaker, the biggest beneficiary of strong worldwide sales of Japanese cars including Toyota Motor Corp (7203.T), booked 144.1 billion yen ($1.3 billion) in April-June recurring profit, which is pretax and before special items.

It raised its profit forecast for the year to March 2009 to 450 billion yen from the 370 billion yen outlook announced three months ago. That was still short of an average 509.48 billion yen estimate given in a poll of 11 analysts on Reuters Estimates.

Substantial delays in talks with carmakers and shipbuilders on 6-month and annual contract prices battered Japanese steelmakers' April-June results as prices stayed low while the cost of iron ore nearly doubled and coal prices trebled.

Nippon Steel expects its customers to let it increase prices by nearly 40 percent this business year. The market expects the company to raise its profit target again in September, allowing it to almost fully pass on those high raw material costs.

Shares in Nippon Steel climbed 14 percent in April-June, in line with the steel sub-sector index .ISTEL.T. (Editing by Ian Geoghegan)