UPDATE 1-Baosteel Q3 net up 6.7 pct, cautious on Q4

* Q3 net profit 3.04 bln yuan vs 2.85 bln yuan last year

* Steel pipes, thick plates market seen weak in Q4

* New production lines and new maintenance will affect Q4 (Adds detail)

SHANGHAI, Oct 29 (Reuters) - China's Baoshan Iron and Steel Co (Baosteel) (600019.SS), the world's third-largest steelmaker, posted on Thursday a 6.7 percent rise in quarterly net profit on higher sales volume, as China grapples with steel oversupply.

Baosteel competes with South Korea's POSCO (005490.KS) and Japan's Nippon Steel (5401.T) to supply China, both the world's largest steel consumer and producer.

The firm cut October-November prices for major steel products to counterbalance market oversupply as analysts expect fundamentals to remain weak unless China's leading steelmills initiate production cuts.

"For the fourth quarter, the external environment faces unfavourable factors, the steel pipes and thick plates market will be weak," Baosteel said in a statement.

Oversupply has weighed on the physical steel market since early August in China, with record crude steel output in August and September boosting inventories.

Baosteel said July-September net profit rose 6.7 percent to 3.04 billion yuan from 2.85 billion yuan a year earlier.

Baosteel reported sales of 106.5 billion yuan in the first nine months of the year, down 33 percent.

The average analyst forecast for net income for the year was 5.09 billion yuan, according to Thomson Reuters I/B/E/S. China has highlighted overcapacity in sectors such as steel and cement, toughening its rhetoric for the steel industry by calling around a tenth of crude steel capacity illegal, but not saying what it plans to do about it. [ID:nPEK159245]

Steel output in China has been growing rapidly.

Annual capacity is expected to top 700 million tonnes by the year-end, with crude steel production of around 600 million tonnes, around a fifth higher than 2008's record 500 million tonnes. [ID:nSHA346936]

POSCO, the world's No.4 steelmaker, has signalled a brighter outlook for Asian steelmakers on improved global demand though sixth-ranked JFE Holdings Inc (5411.T) has said the market is still too fragile for it to upgrade its annual profit forecast. [ID:nSEO240394] [ID:nT298932]

Earnings prospects for Asian steelmakers may be dimmed by the threat of Chinese oversupply at a time when manufacturers are cautious on spending on new plants, and the construction industry remains in the doldrums.

Earlier this week, ArcelorMittal (ISPA.AS) dampened recovery expectations with a muted forecast for the final quarter even though it returned to profit in July-September. (Reporting by Melanie Lee and Alison Leung, Editing by Ian Geoghegan and Jacqueline Wong)