FRANKFURT German industrial group Thyssenkrupp posted a 40 percent jump in first-quarter adjusted operating profit, in line with expectations, but said on Thursday it expected a recovery in its European steel business only later in the year.
Profit was lifted by Thyssenkrupp's elevator business and a sharp improvement in its American steel operations but a recovery in prices that helped its materials distribution business has yet to lift prices at its European steel unit, while still raising input costs.
"Due to the sharp rise in raw material costs combined with a high share of longer-term contract business, this positive trend will not impact earnings at Steel Europe until later in the year," the company said in a statement.
Steel prices have risen in recent months due to lower Chinese exports, anti-dumping measures and higher demand but Thyssenkrupp has relatively little exposure to spot markets, with half its contracts being six months long or more.
Thyssenkrupp hopes to combine its European steel business with that of Tata Steel's to help reduce excess capacity and costs.
But that depends on Tata's finding a solution for its large UK steel pension deficit, which has been complicated by political turmoil in the wake of Britain's vote to leave the European Union.
Tata Steel reported its first profit in five quarters on Tuesday helped by higher sales of industrial products and steel for the auto sector, and said strategic initiatives on UK pensions continued to be a priority.
Arcelor Mittal, the world's biggest steelmaker, is expected to report a 44 percent jump in core profit and a 5 percent increase in quarterly sales on Friday.
Quarterly adjusted operating profit at Thyssenkrupp's Steel Europe unit almost halved to 28 million euros ($30 million), a margin of just over 1 percent on its sales of 1.91 billion euros and short of analysts' expectations of 53 million euros.
Group adjusted earnings before interest and tax (EBIT) were 329 million euros ($352 million) in the quarter to end-December, in line with expectations in a Reuters poll.
Thyssenkrupp confirmed its full-year outlook for adjusted EBIT of around 1.7 billion euros - a rise of about 8 percent - a clear year-on-year improvement in net income and slightly positive free cash flow before mergers and acquisitions.
Orders in the quarter rose 1 percent to 9.95 billion euros and sales were up 6 percent to 10.1 billion euros, broadly in line with expectations.
($1 = 0.9350 euros)
(Reporting by Georgina Prodhan; Editing by Maria Sheahan)