China Oriental Group (HKG:0581) says that it will either have a substantially lower net profit or a loss for the second half of 2011 compared to the second half of 2010.

The reasons for the drop in net profit are: steel demand was significantly affected by the slowdown in the Chinese economy and the eurozone crisis which in turn adversely affected sales prices; iron-ore prices peaked in the third quarter and that led to a compression of margins in the second half of 2011; and the company will make two significant non-cash provisions in December 2011 which the board believes will have an impact on the income statement, which are a provision for impairment of inventory, including iron ore, and write-off of construction in progress.

The company plans to announce its 2011 annual results next month.