Nov. 2 (Bloomberg) -- Baoshan Iron & Steel Co., China’s largest steelmaker, said its fourth-quarter profit will be affected by falling prices and annual maintenance.

Chinese steelmakers have slashed prices because of oversupply and higher inventories, Vice President Chen Ying said today in an online conference. The Shanghai-based mill said it may cut sales by 200,000 metric tons in the fourth quarter from the previous three months because of maintenance on a stainless steel production line and a cold-rolling carbon steel line.

“Steel prices have fallen significantly in the fourth quarter and we will arrange annual maintenance, leading to less output than the third quarter,” General Manager Ma Guoqiang said at the same conference.

Benchmark Chinese steel prices have fallen 20 percent from a 10-month high on Aug. 4 as production overwhelmed demand fueled by the nation’s 4 trillion-yuan ($586 billion) stimulus spending. Angang Steel Co., posting the best quarterly profit in a year, last month forecast that its earnings this quarter will be below the third quarter.

Baoshan Steel rose 2.3 percent to 7 yuan in Shanghai trading. The conference started after the market closed.

The mill has cut prices twice since September, and last week said demand is weak for steel pipes and heavy plates in the fourth quarter. Hebei Iron & Steel Group, China’s second-biggest mill, and Jiangsu Shagang Group Co. have also dropped prices.

Profit Peaks

“The weakness in steel pipes and heavy plates demand, as well as the annual maintenance, would affect our output and profit in the fourth quarter,” Chen said today.

The steelmaker may post earnings per share of 0.13 yuan in the fourth quarter, according to the mean estimate of three analysts compiled by Bloomberg, down 24 percent from the 0.17 yuan for the three months ended Sept. 30.

Baoshan’s third-quarter profit was its highest in five quarters as government spending bolstered demand from makers of automobiles and appliances.

Auto demand in China, set to surpass the U.S. as the world’s biggest car market, will maintain “high growth rates” next year, bolstered by consumption in second- and third-tier cities, Chen said.

Home appliances demand will also have “good prospects” as the government stimulus package boosts rural sales, she said.

Volkswagen AG, the biggest overseas carmaker in China, sold a record number of vehicles in the country in September.

Order Levels

“Demand for cold-rolled products, used in autos and appliances, is ripe, sustaining a steady price,” General Manager Ma said. “The oversupply of hot-rolled products will exist in the long run.”

The mill won “normal” order levels for November, Chen said. Its stainless steel unit posted a profit in the third quarter, though earnings will be affected in the current quarter by lower prices and rising material costs, she also said.

Baoshan Steel will derive a higher proportion of its output from cold-rolled steel and pipes in the next two years, Ma said. Cold-rolled steel is the company’s most profitable product.

The company is targeting annual sales of 145.7 billion yuan for 2009, Ma said.

“Global macro economy will get better next year,” Ma said. “But we are facing uncertainties such as trade protectionism and industry overcapacity.”

Trade protectionism is adding pressure on inventories and intensifying competition in the Middle East, Africa and Southeast Asia markets, Ma said.

The U.S. has imposed duties on some Chinese steel pipes used in oil and gas wells, claiming that the imports were supported by unfair subsidies. China’s steel exports to the U.S. and Europe plunged as much as 85 percent in the first eight months of the year because of the global recession, the China Iron & Steel Association said last month.

Overseas sales in the third quarter for Baoshan Steel was higher than the previous two periods as the mill raised exports to Japan, South Korea and the Gulf region, Ma said.

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--Helen Yuan. Editors: Tan Hwee Ann, Matthew Oakley.

To contact the Bloomberg News Staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: November 2, 2009 04:56 EST