China's Angang Steel Co Ltd (000898.SZ) said on Tuesday it expects its 2008 net profit to fall 55 percent to about 3.42 billion yuan ($500 million) due to high raw material costs and slumping steel prices.

Chinese steel makers, lead by Baosteel, are grappling with a sharp decline in earnings as steel demand weakens in the world's top metal consuming country as a result of fallout from the global financial crisis affecting the real economy.

The sharply lower profit was due to price rises in raw materials and fuel, high fixed input but low output in its newly-built production zone and a provision of 1.8 billion yuan for steel product stockpiles devaluing, Angang said.

Analysts said the forecast was within expectations.

The result forecast provided by the company is within our preview and I think the loss of the share prices over the last year mirrored the market's bearish outlook, said analyst Helen Lau at Daiwa Securities in Shanghai.

Therefore, the markets tomorrow should not over-react on the forecast, she said.

Angang (0347.HK), the listed arm of one of China's top steel makers Anshan Iron and Steel Group, published the unaudited earnings forecast in a filing sent to the Shenzhen Stock Exchange. It earned net profit of 7.53 billion yuan in 2007.

Its share prices in Shenzhen had slumped 77 percent last year, while losing almost 60 percent in Hong Kong, in line with an equity market collapse in China as fund's deleveraged and company earnings slid.

Net profit at Baosteel Group, state-owned parent of Baoshan Iron and Steel (600019.SS) and a major rival of Angang, dropped 32 percent in 2008 to about 23 billion yuan, domestic media have reported.

China is the world's largest steel making country and had steel production capacity of about 660 million tonnes by the end of 2008, compared with an estimated output of about 500 million tonnes. ($1=6.836 Yuan) (Reporting by Alfred Cang, Editing by Jacqueline Wong)

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