July 3 (Bloomberg) -- Mitsubishi Motors Corp., Japan's least-profitable major carmaker, reiterated its earnings forecast as the company focuses on cost cuts to help reduce the effects of rising steel and oil prices.

``We still expect to meet business targets for this year,'' even as the prices for oil and other material surge, President Osamu Masuko said in an interview today in Seoul.

Mitsubishi Motors expects net income to drop 42 percent this fiscal year because of higher raw material costs and a stronger yen. The Tokyo-based company's Lancer sedan is spurring sales in Russia and other emerging markets, helping make up for a drop in demand in North America and Japan.

The carmaker will strengthen its cost-cutting effort and may raise retail prices in emerging markets to meet its profit goal for this year, Masuko said.

``It'll be hard to raise prices in Japan, but I guess there is room for a price hike in emerging markets and resource-rich countries,'' he added. Mitsubishi may also raise prices in the U.S., where its sales dropped 23 percent to 53,883 during the first half. Industry vehicle sales in the U.S. fell 10 percent in the first six months of this year.

Mitsubishi's sales in Japan declined 9.8 percent during the first half, compared with 0.9 percent drop in industry demand, according to data from the Japan Auto Dealers Association.

The company in April said net income may fall to 20 billion yen ($189 million) for the year ending March 31, 2009 from 34.7 billion yen a year earlier. Global sales may fall 4 percent to 1.3 million vehicles in the period.

Small Car Focus

In an effort to fight against rising oil price, the carmaker will focus on developing fuel-efficient small vehicles, the president said.

``The surge in oil price is turning customers' need toward small cars. We'll meet the demand by developing fuel-efficient small cars,'' he added.

Mitsubishi Motors said today it will start selling vehicles in South Korea from October to tap the country's growing demand for foreign-made cars. The carmaker aims to sell 400 vehicles in the first year and 3,000 vehicles in 2010, the carmaker said.

Choi Jong Yeol, president at MMSK Corp., a distribution joint venture between Mitsubishi and Daewoo Motor Sales Corp., said the Mitsubishi brand may take about 5 percent of South Korea's market for imported cars within two years after beginning sales.

Shares of Mitsubishi Motors fell 2.2 percent to 181 yen at the close of trading on the Tokyo Stock Exchange.