Nippon Steel Corp <5401.T>, Japan's top steelmaker, forecast profits to rise this year as a slow global economic rebound bolsters demand, outperforming smaller rival JFE Holdings Inc <5411.T> which expects earnings to dwindle on tough competition in Asia's export markets.

Japan's two biggest steelmakers are recovering from the post-March 11 earthquake slump which weighed on their first-quarter earnings reported on Wednesday.

However, automakers are ramping up output, and allowed Japanese steelmakers to hike prices more than other Asian steelmakers could achieve in their domestic markets.

While Nippon Steel sees an improving economy adding impetus to that rebound, JFE's more conservative outlook reflects concern over soft pricing amid a supply glut in Asia, the strong yen and a deep construction sector slump.

Nippon Steel expects its average steel price in the second quarter to jump 7.2 percent from the first quarter to 92,000 yen per tonne ($1,178), compared to 6.8 percent at JFE to 88,000 yen.

JFE, with bigger exposure to export market, is less confident in making money this year because Asia's export market is pretty tough now, said Jeremie Capron, analyst at CLSA.

Steel prices in Asia are under pressure as rivals, including China's Baosteel <600019.SS> and South Korea's POSCO <005490.KS> bulked up capacity and boosted exports.

Nippon Steel beat the latest consensus forecast. Maybe price hikes are going pretty well. The yen's rise may have reduced the costs of imports, said Fujio Ando, senior managing director at Chibagin Asset Management.

European markets are holding up better, where ArcelorMittal , the world's largest steelmaker, said second-quarter profits surged to a post-crisis high, beating forecasts.

Nippon Steel, which had skipped its full-year earnings forecast in April due to an uncertain market in the aftermath of the quake, forecast a 230 billion yen ($2.95 billion) recurring profit for the year to March 2012.

The outlook exceeds a mean estimate of 197.8 billion yen in a poll of 21 analysts by Thomson Reuters I/B/E/S and compares with last year's profit of 226.3 billion yen.

SUPPLY CHAIN RECOVERS

Overall, we expect a gradual recovery. Supply chains are returning to normal and, with them, production, the company said in a statement. A strong yen and tight electricity supplies in Japan, however, still remain a concern, it added.

The yen has risen to about 78 to the dollar from above 85 in April, sapping export returns.

Export-focused JFE sees full-year profit falling 22 percent to 130 billion yen, albeit higher than a Thomson Reuters SmartEstimate of 125.3 billion yen.

That more cautious outlook comes after U.S. rival AK Steel Holding Corp on Tuesday forecast a sharp drop in third-quarter profit and U.S. Steel Corp also said this week it expected a lower quarterly profit.

In the first quarter Nippon Steel reported a 7.9 percent dip in recurring profit for April-June to 57 billion yen, compared with a 61.89 billion yen profit a year ago. Recurring profit is pretax and excludes special items.

JFE booked a 51 percent fall in quarterly profit to 25.4 billion yen. But many analysts say excluding such temporary factors like inventory valuation gains and low-cost inventory of iron and coal, quarterly profit may have been slightly above breakeven.

Nippon Steel shares, which are nearly back to their pre-quake levels, gained 1.1 percent after it released its results and outlook. JFE's stock fell 1.5 percent.

($1 = 78.070 Japanese Yen)

(Additional reporting by Tim Kelly and Hideyuki Sano; Editing by Lincoln Feast)

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