BUENOS AIRES (Reuters) - Higher costs and slowing growth in key sectors of Argentina's economy mean the nation's No. 2 steelmaker, Acindar (ACI.BA: Quote, Profile, Research, Stock Buzz), will have a tough time matching its 2006 profits this year, the company's CEO said on Wednesday.
"We're going to have a big challenge to maintain (profits) because of the issue of domestic costs," Arturo Acevedo said at the Reuters Latin American Investment Summit in Buenos Aires.
Acindar posted a 2006 net profit of 603.9 million pesos ($195 million), up from 549.7 million pesos in 2005.
Acevedo said he expects higher costs for wages, natural gas, electricity and iron ore. Sector-wide salary negotiations are in full swing, with companies aiming for a 10 percent rise and unions seeking a 20 percent hike.
Acevedo said a reasonable wage increase should be in line with inflation, which was nearly 10 percent in 2006.
Acindar is Argentina's market leader in rolled steel. It provides materials to the farm and construction sectors along with local industry, including automobiles -- sectors that have been flourishing as the economy grows briskly.
But activity in these sectors is slowing this year.
"Although (these areas) won't grow at the vertiginous rates of 2005 and 2006, that doesn't mean business will not still be good in 2007," Acevedo said.
"Profitability is being squeezed and we're working to counteract the increase in domestic costs by trying to be more efficient," he added.
Acindar still plans to invest about $100 million this year to expand its production capacity to 1.7 million tons a year from 1.4 million tons currently, and Acevedo said revenue in 2007 should be "in line with" the $908 million recorded in 2006.
The company will boost its exports -- which accounted for only about 13 percent of last year's sales volume -- if it finds demand has flagged in the local market.
Acindar is controlled by Belgo Siderurgica, which in turn is controlled by Arcelor Brasil ARCE3.SA, part of international steel giant Arcelor Mittal (MTP.PA: Quote, Profile, Research, Stock Buzz) (ISPA.AS: Quote, Profile, Research, Stock Buzz) (MT.N: Quote, Profile, Research, Stock Buzz).
Argentina's economy grew more than 8 percent in each of the last four years, recovering from a devastating 2001-02 crisis.
(Additional reporting by Hilary Burke, Jorge Otaola and Cesar Illiano)
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