Beijing - The demand for auto sheet is set to recover from a decline in auto production caused by the recent Japanese earthquake, as domestic carmakers import components from the country, said a senior executive from Baoshan Iron and Steel Corp (Baosteel) on Tuesday.

Stainless steel production in a rolling mill in Xinghua, Jiangsu province. The growth in steel consumption in China may slow over the next five years. [Photo/China Daily]

Production cutbacks in the car industry will affect Baosteel, however auto sheet demand will pick up later, said Ma Guoqiang, general manager of Baosteel, which supplies half of China's automotive steel, at an online shareholders conference.

China's total crude steel production capacity is likely to rise by 40 million tons this year, said Chen Ying, vice-general manager of Baosteel.

The company's net profit for the first quarter of 2011 slipped 22 percent year-on-year to 3.07 billion yuan ($473 million) due to higher raw-material costs and slowing demand.

High raw materials costs including iron ore and coking coal, and oversupply have squeezed profit margins for the nation's 77 major steel companies to 2.9 percent in the first quarter, according to the China Iron & Steel Association (CISA). That's compared with a 6.2 percent average in the industrial sector.

China's crude steel output rose 8.69 percent year-on-year to 170 million tons in the first quarter of this year, according to CISA on Friday.

CISA also estimated that the growth in steel consumption in China will slow over the next five years, with an annual growth rate of between 2.6 percent and 4.6 percent.

Chinese steel makers will further confront difficulties in the second quarter due to the slowing pace of auto demand.

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The growth in vehicle sales may slow to 10 percent this year after rising 32 percent in 2010, Xu Lejiang, Baosteel's chairman, said last month.

China's vehicle production rose 7.4 percent and sales increased 8 percent, lower than Baosteel's auto sheet growth rate, said Chen Ying.

Baosteel aims to produce 24 million tons of iron, 27.5 million tons of steel, and to achieve revenue of 210 billion yuan in 2011.

Global supply and demand conditions for iron ore may reverse in a few years, Baosteel Chairman Xu Lejiang said last week.

A flurry of investment in mining in recent years will result in an end to the global iron ore shortage, and the consequent oversupply will severely weigh on prices in the near future, he said.

Noront Resources Ltd, a Toronto-based miner said on Monday that it signed a deal to sell 14.2 percent of the company to Baosteel Resources International Ltd, a unit of Baosteel Group, for $29 million.