JP Morgan on Wednesday lowered its 2004 and 2005 profit forecasts by 16 and 18 percent respectively on Tsingtao Brewery (600600), China's largest beer maker, citing skyrocketing raw material prices.

The earnings downgrades also resulted from higher distribution costs, including gasoline prices, and limited pricing power, which was crimping margins, the bank said.

"Tsingtao management estimates transportation costs for the group are up 10 to 15 percent year to date versus last year," JP Morgan analyst, Vicki Kalb, wrote in a research note.

She said costs for goods such as rice, water, electricity, and packaging materials, had all "risen significantly."

Fast-growing China's voracious consumption of primary goods has driven up global commodity prices.

JP Morgan reduced its 2004 profit estimate on Tsingtao to 336 million yuan (US$40.58 million) from 400 million yuan. It also cut its 2005 profit forecast to 437 million yuan from 530 million yuan on expectations for continued higher expenses.

The investment bank maintained a "neutral" rating on Tsingtao on the back of positive China consumer sentiment and a long-term growth story in the country.

Shares of Tsingtao Beer have rallied 109 percent over the past year on the Hong Kong market.

(Shenzhen Daily February 17, 2004)