UPDATE 2-China's Baosteel Q1 net profit rises 16 pct

(Adds analyst comment)

By Alfred Cang

SHANGHAI, April 28 (Reuters) - China's Baoshan Iron and Steel Co (600019.SS: Quote, Profile, Research) reported on Monday a 16 percent rise in first-quarter earnings, beating analysts' forecasts, after climbing steel prices offset a surge in raw material costs.

Baosteel, which competes with Japan's Nippon Steel Corp (5401.T: Quote, Profile, Research) and South Korea's POSCO (005490.KS: Quote, Profile, Research) to supply China's market, posted a net profit of 4.26 billion yuan ($609 million) against 3.68 billion yuan a year earlier.

Five analysts from brokerages and fund management firms polled by Reuters had given a median forecast of 3.68 billion yuan for first-quarter earnings at the listed arm of China's largest steelmaker.

Profit rebounded sharply from the October-December quarter, when earnings shrank to about 2.17 billion yuan because of weakness in the stainless steel market following a plunge in nickel prices.

Baosteel raised its major steel product prices as much as 8 percent for the first quarter of 2008, before lifting second-quarter prices a further 17 to 20 percent. Sales rose 9 percent to 47.03 billion yuan in the first quarter.

"Deep cost-cutting and increased efficiency maintained stable earnings growth" in the first quarter, despite rising materials costs and fierce winter weather in China, which disrupted power supplies, the company said in a statement.

Financing costs shrank 69 percent to 92.8 million yuan during the quarter because the company made a foreign exchange profit as it increased U.S. dollar financing and the yuan <CNY=CFXS> appreciated, Baosteel said.