PREVIEW-Asia steel firms' Q2 profits to tumble; H2 seen better

* What: Major Asian steel mills' April-June earnings

* When: POSCO (July 13); Nippon (29); JFE (28)

* Results seen sharply lower on price cuts, weak demand

* H2 outlook improving on demand, price recovery

By Miyoung Kim

SEOUL, July 8 (Reuters) - The April-June quarter should prove to be the low point this year for Asia's big steel firms as a pick-up in orders from carmakers and builders boosts demand and prices, while lower input costs help many return to profit.

Hit by the industry's worst downturn in decades, Asia's steelmakers cut production by as much as 50 percent in the first half of this year, but are now cranking up output as stimulus packages drive demand and manufacturers replenish low stocks.

Japanese mills, led by Nippon Steel (5401.T) and JFE (5411.T), remain the biggest casualties of the downturn and are seen posting heavy losses in April-June, hit by price cuts and reduced demand from the autos industry, their main customer.

"We expect April-June to be the worst quarter of the year for earnings, as Japanese steel companies will have to book a large amount of one-time losses such as inventory write-off on top of already weak results," said Goldman Sachs analyst Rajeev Das.

"But the good news is that ... steel production has started to pick up. At least, it seems the worst is now over and that some firms may almost break even in Q2 (July-September)."

Asian steel prices have risen by around a tenth from April lows to nearly $500 a tonne. China, the world's No.1 steelmaker, is leading the recovery, helped by a near-$600 billion infrastructure focused stimulus package.

Improving demand and prices are helping Chinese mills return to profit: The China Iron and Steel Association said its 72 member mills made a combined profit of 1.3 billion yuan ($190 million) in May, ending seven straight monthly losses. [nPEK344502]

Baosteel (600019.SS), China's top steelmaker, raised domestic prices of its main products for July and plans to increase them again for August, brightening its earnings prospects for the rest of the year.[nSHA225095]

"Baosteel's earnings are expected to improve quarter by quarter for the rest of the year, and at an ever faster pace," said Helen Lau at Malaysia's OSK Securities in Hong Kong.

But the recent price recovery could prove fragile as steelmakers around the world raise output fast.

Chinese mills are operating almost at full capacity, with daily production hitting a record high in mid-June, while Nippon Steel plans to raise its run rates to around 60-70 percent this quarter from 55 percent. [nTFD006262]

"Given global oversupply and growing inventories in China, we don't expect prices to recover beyond the low $500 a tonne level," said UBS analyst Atsushi Yamaguchi.

POSCO PROFIT EYES DECADE LOW

Hit by lower output and earlier than planned price cuts in May, South Korea's POSCO (005490.KS) is likely on Monday to report its lowest underlying profit since it started releasing quarterly results in 2000.

The world's sixth-largest steelmaker chopped its domestic steel prices by up to a fifth in May, its biggest ever reduction, as a rebound in the Korean won currency KRW= threatened to open the door to cheaper imports.

But the third-quarter outlook is brighter as POSCO is expected to use cheaper raw materials after depleting its stocks of expensive raw materials secured under 2008 term contracts, while steel prices and demand are on the rise.

"Production volume and sales volume are anticipated to increase, as automobile and consumer electronics companies restart purchasing steel, following the price cut," said Chris Kim, analyst at Goodmorning Shinhan Securities.

Japanese and South Korean firms have fixed their input costs for 2009 by agreeing with Australian miners to cut fine iron ore prices by a third and coking coal prices by around 60 percent.

Estimated Year ago Reporting date

profit/(loss) profit Nippon Steel (94.33 bln yen) 161.68 July 29 JFE (28.95 bln yen) 153.08 July 28 Sumitomo (5405.T) (45 bln yen) 92.09 July 30 Kobe (5406.T) (67.5 bln yen) 46.28 July 30 Baosteel 6.55 bln yuan 6.46 Aug 29 POSCO 172 bln won 1,885 July 13

Notes: Baosteel - net profit for full-year to end-2009; Japan steelmakers - net profit for half-year to end-Sept; POSCO - operating profit for second quarter to end-June.

(Additional reporting by Lu Jianxin in SHANGHAI and Yuko Inoue in TOKYO; Editing by Jonathan Hopfner, Dhara Ranasinghe and Ian Geoghegan)

((miyoung.kim@thomsonreuters.com; +822 3704 5651; Reuters Messaging: miyoung.kim.reuters.com@reuters.net))

((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))

($1=6.832 Yuan)

* Reuters 3000 Xtra clients can double click on [ASIA/EARN] for daily data on how reported Asian company earnings compare with analysts' forecasts, as measured by Reuters Estimates. Keywords: ASIA STEEL/PREVIEW . Keywords: ASIA STEEL/PREVIEW =2

(C) Reuters 2009. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nSEO326042