INNER Mongolia's Yili Industrial Group and Shanghai's Bright Dairy Group, two major dairy firms hit by China's scandal over contaminated milk, estimated they would post net losses for the third quarter.

The separate filings made to the Shanghai Stock Exchange on Monday didn't give specific figures. Their full third-quarter earnings reports are due to be released later this month.

"Dairy firms are suffering a combined hit from sales drops and increasing costs," said Wang Peng from Shenyin Wanguo Research & Consulting.

Wang predicted domestic diary producers would experience a "chilly winter" due to shrinking demand and increasing watchdog pressure.

Despite the news, Yili and Bright Dairy both jumped by the full 10 percent daily cap to 7.92 yuan (US$1.16) and 4.37 yuan respectively.

Broad losses in the industry are inevitable, although the recall and compensation costs will not damage long-term operations, Wang said.

According to Shenyin Wanguo's estimate, Yili will pay about 300 million yuan for the recall and destruction of contaminated milk, and compensation related to the scandal.

"Yili's sales of milk powder, which contributed 22 percent of gross profits, are expected to fall 20 percent in the second half of the year, while liquid milk and ice cream will all see drops between 10 and 15 percent due to consumer concerns," Wang said.

Bright Dairy may fair better as its products focus on high-end yogurt and pasteurized milk.

Yili posted a net profit of 116.9 million yuan in the first half of the year, while Bright Dairy made a profit of 140.8 million yuan.

The Chinese food safety watchdog has cleared thousands of tons of milk products made by the two firms and other dairies after September 14.