PREVIEW-Auto woes to dent Japan steelmakers' earnings

* What: Nippon Steel, JFE, POSCO, Baosteel profit forecasts

* When: Oct-Dec results due mid-Jan to end-March

* Battered exports of cars, machines to hit Japan
steelmakers

* Domestic demand to help POSCO, Baosteel

By Yuko Inoue

TOKYO, Jan 9 (Reuters) - Japan's big steelmakers, led by
global No.2 Nippon Steel Corp (5401.T), face strong headwinds
this year as a weakening global economy hits major customers
such as the country's export-oriented carmakers and
manufacturers.

But Asian rivals, including globally fourth-ranked POSCO
(005490.KS) of South Korea and China's Baoshan Iron and Steel
Co (Baosteel) (600019.SS), the world's fifth-biggest
steelmaker, may fare better as there will be stronger domestic
demand.

POSCO, South Korea's only blast furnace operator, should
keep capacity utilisation rates high as domestic buyers switch
to cheaper local supply because of a weaker won currency that
makes imports dearer.

POSCO is a key supplier to the country's big shipbuilders,
who have multi-year order backlogs and will ensure steel
production lines are kept busy, while China's economic stimulus
package should help demand at Baosteel.

"Japanese carmakers' and manufacturers' heavy reliance on
external demand is a big disadvantage for their steelmakers
this year," said Takashi Murata, analyst at Daiwa Institute of
Research.

"Auto statistics are getting nasty, meaning some analysts
are further downgrading their earnings forecasts for Japanese
steelmakers after next month."

POSCO kicks off the sector's earnings season on Jan. 15,
ahead of Nippon Steel on Jan. 29 and JFE Holdings Inc (5411.T)
on Jan. 30.

Global steelmakers face a sharp reversal in demand as tight
credit strangles demand for cars, construction machinery and
other products that consume steel.

Toyota Motor Corp (7203.T), Honda Motor Co (7267.T) and
Hyundai Motor Co (005380.KS) have all cut production as drivers
put off big-ticket buys, leaving dealers' lots full of unsold
cars.

Toyota is the biggest single customer of both Nippon Steel
and JFE and its forecast for a first-ever annual operating loss
has spooked markets and triggered speculation it will squeeze
the whole supply chain in upcoming price negotiations.

"It's inevitable that steelmakers' profit margins will come
down," said Naoki Takahashi, analyst at Fitch Ratings.

The Nikkei business paper has reported Toyota wants a 30
percent price cut this year on automotive steel sheet, the
biggest business for Nippon Steel and JFE.

The current downturn has not yet dented Japanese steelmill
earnings as term contracts normally run for a year, but POSCO
and Baosteel have frequently changed prices in line with the
market.

SOLID 4Q FOR POSCO

POSCO, which has a strong grip on local pricing, should
post a solid fourth quarter on higher steel prices, benefiting
from a shortage of heavy ship plate and a weak won that made
imported steel products less competitive.

Analysts expect October-December net profit to jump more
than 80 percent to 1.29 trillion won. As demand wanes, POSCO
last month announced its first-ever output cut, but this was
just 2 percent of annual output, versus cuts of 13 percent at
JFE and 6 percent at Nippon Steel.

Richard Kim, analyst at Korea Investment & Securities,
predicted POSCO's operating profit would weaken in the first
half of this year but pick up from the second half as raw
material prices have slumped. He expected POSCO to make more
shipbuilding slabs, which are in short supply, and less auto
sheet.

Baosteel, hit by lower prices and a drop in output, is
likely to swing to a 4.4 billion yuan net loss from a year-ago
profit of 2.17 billion yuan, according to a poll of five
analysts.

Cui Jingyi, analyst at Guotai and Junan Securities, said
China's spending package should help steel demand, though the
direct impact on Baosteel's earnings would be limited as it
mainly supplies automakers and home appliance industries, both
hard hit as consumers tighten their purse strings.

Japanese steelmakers are expected to cut their 2008/09
earnings estimates to take into account the output cuts that
began in November, with Nippon Steel's operating profit seen at
517.86 billion yen, below its own 540 billion yen forecast,
according to a poll of 17 analysts.

A consensus for JFE is for 472.48 billion yen, versus the
company's estimate of 490 billion yen.

FORECAST NET PROFIT FOR 2009*
COMPANY Estimate** Date
Nippon Steel 202.26 (-38%) Jan 29
JFE Steel 181.86 (-34%) Jan 30
Sumitomo Metal (5405.T) 122.97 (-32%) Feb 4
POSCO 4.20 (-15%) Jan 15
Baosteel 11.57 (-13%) March 28

Notes: * Year starting April 2009 for Nippon Steel, JFE and
Sumitomo Metal Industries Ltd. Calendar 2009 for POSCO,
Baosteel.

** Billions of yen for Japanese steelmakers; trillions of
won for POSCO; billions of yuan for Baosteel.

15 analysts polled for Nippon Steel, JFE; 12 analysts for
Sumitomo Metal; 24 analysts for POSCO and 16 for Baosteel.
(Additional reporting by Kim Miyoung in SEOUL and Alfred Cang
in SHANGHAI)
(Editing by Ian Geoghegan)