Shares in Baoshan Iron and Steel Co fell 1.5 percent Wednesday after the Chinese giant posted a 36.9 percent drop in first-half net profit due to soaring raw material costs and weaker demand.

The Shanghai-listed unit of Baosteel Group -- China's second largest steel maker by output -- earned 5.08 billion yuan ($794 million) in the first six months, down from 8.05 billion yuan a year earlier, it said late Tuesday.

Its shares fell 1.5 percent to 5.25 yuan at end of morning trade.

Revenue grew 13.5 percent year-on-year in the period to 111.15 billion yuan but a "significant increase" in costs of iron ore and other raw materials eroded profits, according to a statement to the Shanghai Stock Exchange.

The gross profit margin for steel production fell by 6.23 percentage points from the same period a year ago to 7.83 percent, it said.

The company expects demand from downstream sectors, such as China's automobile, home appliance and machinery sectors, to continue to slow after rapid growth in recent years amid uncertainty in the global economy.

"Steel product prices in the domestic market are unlikely to pick up while iron ore costs remain at high levels ... Steel companies still face large pressure for profit declines in the second half," it said.

The company revised up its full-year operating revenue target to 217.9 billion yuan from 210.0 billion yuan, but the forecast for operating costs was also raised to 198.6 billion yuan from 184.7 billion yuan.

The company plans to produce 27.12 million tonnes of steel in 2011, down slightly from a previous target of 27.47 million tonnes.

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