Aug. 29 (Bloomberg) -- Baoshan Iron & Steel Co., China's biggest steelmaker, may say first-half profit rose because of higher prices and increasing demand from automakers including Volkswagen AG and General Motors Corp.

Net income probably increased 87 percent to 8.23 billion yuan ($1.1 billion), or 0.47 yuan a share, in the six months ended June 30, based on the median estimate of nine analysts surveyed by Bloomberg News. Shanghai-based Baoshan Steel is scheduled to report on Aug. 29.

Baoshan Steel followed Nippon Steel Corp. and Posco in making more metal for China, which overtook Japan last year to become the world's second-largest car and truck market. Vehicle sales may rise 15 percent this year, according to the China Association of Automobile Manufacturers.

``The supply-demand situation in the steel industry will be further improved in 2008,'' said Douglas Yang, an analyst in Shanghai at Fortis Haitong Investment Management Co., which manages the equivalent of $7.9 billion, including Baoshan Steel. ``Baoshan stock hasn't risen enough to reach its fair value compared with its domestic rivals.''

Baoshan Steel has more than doubled in Shanghai trading this year. Its shares are valued at 21 times 2006 earnings, lagging behind domestic peers. The yuan-denominated shares of Angang Steel Co., China's largest steel exporter, trade at 29 times 2006 earnings and Maanshan Iron & Steel Co. is at 27 times.

Steel prices have risen 20 percent this year in China, according to Merrill Lynch & Co. Baoshan raised prices for its main products by as much as 6.5 percent for the second quarter, the first increase in nine months. About 75 percent of its products were hot-rolled and cold-rolled coil, sheets and plates, used in cars and appliances, according to the company's 2006 annual report.

Volkswagen's Shanghai venture boosted second-quarter vehicle sales 33 percent to 115,955. General Motors' China units raised their combined sales 26 percent to 272,911.

To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: August 28, 2007 20:25 EDT