April 23, 2008 / 6:58 AM / 10 years ago

UPDATE 2-SSAB Q1 pretax rises, iron ore prices yet to bite

(Adds analyst comment, share price)

By Simon Johnson and Johannes Hellstrom

STOCKHOLM, April 23 (Reuters) - Swedish specialty steelmaker SSAB SSABa.ST reported first-quarter pretax profit well above expectations on Wednesday, but said the full impact of surging iron ore prices had not been felt during the period.

SSAB, which said in March it would sell its IPSCO Tubular division for $4 billion, posted a quarterly pretax profit of 2.37 billion Swedish crowns ($401 million) against a forecast of 1.81 billion in a Reuters poll and 2.14 billion in the same period the previous year.

Sales in the first quarter were 12.9 billion crowns against a forecast 14.1 billion crowns.

Steelmakers worldwide are raising prices to reflect stronger demand, but higher raw material costs are seen eating into profits.

SSAB, however, said it had so far escaped the worst effects of rising iron ore, coking coal and scrap metal prices.

“The increased iron ore prices have not fully impacted the results during the quarter since we partially produced and delivered from our stocks,” Chief Executive Olof Faxander said in a statement.

SSAB said price increases during the quarter had also helped offset higher iron ore costs.

A climb in the price of scrap metals, the main raw material for its IPSCO unit, could not be fully offset by price rises.

“Purely in operational terms, it looks very good, as does demand and they seem confident about the future,” said one analyst who declined to be identified.

“They seem to have held costs under control and they could fall back on their stocks so raw materials prices have not come through fully.”

SSAB shares were up 6.5 percent at 196 crowns at 0707 GMT

STRONG DEMAND

For the coming year, SSAB said it saw demand staying strong. This chimes in with a report by research group the International Iron and Steel Institute in April which projected steel demand would grow by 6.7 percent to 1.28 billion tonnes this year.

China, India, Russia and Brazil will be the main drivers of growth as Western economies slow down, the IISI said.

However, raw materials costs are also expected to surge.

SSAB said price agreements with Sweden’s LKAB meant an increase of 87 percent in the price of iron ore, though the effect in Swedish crowns was contained to a rise of 60 percent.

The firm said coal agreements had been signed to cover 30 percent of its annual volume. Prices were up 30 percent in dollar terms and 15 percent in Swedish crowns. However, it said it expected the remainder of its coal supply to cost much more.

Some analysts believe coking coal prices could rise as much as 200 percent this year.

The impact of more expensive coking coal will come in the third quarter, SSAB said, adding it aimed to increase prices to offset the effect of more costly raw materials.

The Tubular division, to be sold to Russian steel maker Evraz HK1q.L, is reported separately.

The company also said it would invest 1.0 billion-1.5 billion Swedish crowns to build a new U.S. heat-treating line for quenched and tempered steel either in Montpelier, Iowa or Mobile, Alabama. (Editing by Will Waterman, Paul Bolding)

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