Business

Domestic air conditioner producers are taking a further hit this summer by rising material costs, bloated inventory and declining sales both at home and abroad, according to industry analysts.

Shi Hong, an analyst on home electrical appliances at Industrial Securities in Shanghai, told China Daily that profits of most air conditioner manufacturers are expected to drop again this summer largely because of dwindling sales as potential buyers are balking at the idea of buying them because of rising energy costs.

The sluggish property market has also contributed to the decline in sales because fewer new homes need to be fitted, Shi and other analysts said.

Exports of air conditioners, accounting for more than half of the industry’s total sales, has also been dragged down by the persistent appreciation of the renminbi against the US dollar and other major currencies. These problems have been aggravated by surging material costs.

“The surging prices of basic materials in producing air conditioners, such as steel and petrochemical products, have hit manufacturers,” Shi said.

Analysts said the continuous renminbi appreciation has stripped national air conditioner makers of their competitiveness against Japanese and South Korean brands in many overseas markets.

Latest industry figures show sales of Chinese air conditioning products in May totaled 7.92 million units, down 10.9 percent from the same month in the previous year. Of these, 3.13 million units were sold in the domestic market, down 32 percent from the previous year.

Although exported air conditioning products from China increased 13 percent in May to 4.79 million units, the growth rate dropped 7 percentage points compared with last May’s 20 percent.

Meanwhile, the inventory of air conditioners rose 4 percent to 10.75 million units by the end of May.

Although June’s sales figure is yet to be published, analysts predict it won’t significantly increase from May.

“I don’t expect any pleasant surprises in terms of higher sales in June,” said Shi.

Industry analysts said as long as manufacturing costs keep rising and sales fail to rebound, air conditioner makers will continue to suffer shrinking profits in the next two months, after which the annual peak sales season ends.

Apart from material costs, according to industry experts and analysts, air conditioner makers should also control the expenses related with sales and company operation, which usually account for 70 percent of the gross profit margin.

For example, Gree and Midea, the nation’s two largest air conditioner makers in terms of sales, posted a gross profit margin of 18 percent and 18.6 percent respectively in 2007. But after weeding out their expenses on product sales and company operation, they posted a net profit margin of 3.39 percent and 3 percent respectively.

(China Daily July 16, 2008)

Guangdong Midea Electric Appliances Co Ltd will invest in a 200-million-yuan (US$29.41 million) joint venture with Carrier Corp of the United States to produce air conditioners in Foshan in Guangdong Province.

Midea, the country’s second-largest listed household goods maker, will hold a 60-percent stake in the venture and Carrier Corp, a unit of United Technologies Corp, will take the balance, the Chinese company said in a statement to the Shenzhen Stock Exchange yesterday.

The venture, which is set to start operations at the end of this year, will rent Midea’s plants to research, develop, assemble and manufacture residential and light commercial air conditioning products. The project is still awaiting regulatory approval.

“The new venture will make use of our advantages in supply chain, management and production system and Carrier’s competitive edge in branding,” the statement said. The cooperation will also help enhance Midea’s experience in brand building, technology and management, it said.

“Our new JV aims to be a stable, long-term platform of capital, product, technical and brand cooperation and alliance between Midea and Carrier,” said a Midea spokesman.

Midea has tied up with Toshiba Carrier Corp to also make air conditioners.

(Shanghai Daily July 3, 2008)

China National Gold Group Corp.(CNGGC), the country’s biggest gold producer, announced its profits in the January-May period had jumped 56.97 percent year on year, according to Tuesday’s Shanghai Securities News.

The Shanghai-listed company (SH.600489) attributed the profit increase to the mounting gold price, speeded-up resource development pace and rising gold output.

Gold output of the country’s leading gold producer and trader rose 49.69 percent in the first five months year on year.

No detailed figures of the gold production and profits in the period from January to May were available, but it produced 70 tonnes of standard gold in 2007. Its profits stood at 620.5 million yuan (90.48 million U.S. dollars) last year.

The CNGGC said on Monday that it had found a new vein with an estimated 15 tonnes of gold at one of its mines in southwestern Guangxi Zhuang Autonomous Region.

The group had a total asset of 10.2 billion yuan and controls more than 30 percent of the country’s gold reserves.

(Xinhua News Agency July 8, 2008)

Aluminum Corp of China Ltd, the nation’s biggest producer of the metal, is halting production at a venture in the northern province of Shanxi because of a power shortage.

The provincial government ordered smelters to cut output to ensure power supply for farming, Wang Suomin, a manager at the Shanxi Huaze Aluminum & Power Co venture, said by phone yesterday. The venture has an annual capacity of 280,000 metric tons.

“This will boost aluminum prices,” Le Yukun, an analyst at BOC International Ltd, said by phone from Shanghai. “Power shortages may spread and worsen, forcing more output cuts.”

Aluminum for three-month delivery rose to the highest in four months in London. It gained as much as $85, or 2.7 percent to $3,245 a ton, the highest intraday price since March 6. It traded at $3,236 a ton at 8:42 am London time. The metal rose 1.8 percent to close at 19,700 yuan on the Shanghai Futures Exchange at 3 pm.

The government ordered smelters to halve output, and producers with 700,000 tons of capacity may have been affected, analyst Eric Zhang of research company CBI China Co said. That’s nearly 5 percent of output in the world’s largest producer. CBI didn’t name the affected smelters.

Shanxi, China’s biggest coal-producing province, issued a “red” warning on power and will limit supplies to energy intensive and polluting factories, the State Electricity Regulatory Commission said yesterday. Power shortage in the province reached 4,647 mW as of June 26, the commission said.

There is a power shortage in the Shanxi province, said Zhang Qing, a spokeswoman with Beijing-based Aluminum Corp, better known as Chalco. Zhang said she wasn’t aware of the production situation in Shanxi.

Huaze is “gradually” cutting output, Wang said, without giving a loss estimate at the venture, which is owned by Chalco and Shanxi Zhangze Electric Power Co.

The bigger smelters in the province include Shanxi Huasheng Aluminum Co and Shanxi Guanlu Co. Huasheng is a joint venture between Chalco and Shanxi Guanlu, with an annual capacity of 220,000 tons.

Zhen Qijia, secretary of Shanxi Guanlu, said he is unaware of the situation at Huasheng. Calls to Huasheng were not answered.

China is the world’s largest producer of aluminum, which is used in aircraft and cars, with a total capacity of more than 15 million tons.

(China Daily via agencies July 8, 2008)

Sinosteel Corp is now the sole bidder in the takeover of Australian iron ore prospector Midwest Corp after Murchison Metals Ltd withdrew its offer to merge with Midwest.

Murchison said in a statement yesterday that, after talking with Sinosteel over the weekend, it decided to terminate the merger plan as it “is now clear” that Sinosteel will not support the merger on terms which would be acceptable to Murchison.

Murchison in May proposed a merger with Midwest via a share swap, which initially represented a premium to Sinosteel’s A$6.38 cash (US$6.11) offer before Murchison’s shares declined.

Sinosteel, which held 45.58 percent of Midwest as of last Friday, last month said Murchison violated Australia’s corporate code as one American shareholder of Murchison bought Midwest shares without approval. The Australian takeover body ruled in favor of Sinosteel.

“It was disappointing that the merger would not proceed at this time given the tremendous value that both Murchison and Midwest believe could be generated by combining their assets,” said Paul Kopejtka, executive chairman of Murchison.

A spokesman for Beijing-based Sinosteel said it’s pleased with Murchison’s move, and would now focus on pursuing its takeover and is confident it would gain more acceptances.

Still, Murchison said it wouldn’t accept Sinosteel’s A$6.38 offer in respect of its 10 percent stake in Midwest, as it intends to play an active role in the company and will seek to maximize the value of its shareholding.

Midwest was unchanged at A$6.38 yesterday, the same level as Sinosteel’s offer price, ahead of Murchison’s announcement.

Contract prices of iron ore, used to make steel, have risen for six consecutive years, prompting steel makers to secure more supplies.

(Shanghai Daily July 8, 2008)

China National Gold Group Corporation (CNGGC) said on Monday it had found a new vein with an estimated 15 tonnes of gold at one of its mines.

The Na Neng gold mine in southwestern Guangxi Zhuang Autonomous Region was previously thought to have a proven reserve of 5 tonnes, an unnamed official with the country’s leading gold producer, manufacturer and trader told Xinhua.

The country currently has 330 large-scale gold mines nationwide, with a daily output of 11,000 tonnes.

The CNGGC announced earlier the Ministry of Finance had provided it with 47.75 million yuan (6.96 million U.S. dollars) from the 2008 central budget in a bid to help it prospect new mines.

This year, China surpassed the United States to become the world’s second largest gold producer behind South Africa. In 2007, its gold output reached 270.491 tonness, up 12.67 percent year on year.

To further boost the gold trade market and make gold resources more accessible to individual investors, Beijing Equity Exchange launched a gold trading center last weekend.

Gold bars can now be traded over-the-counter between buyers and sellers.

Qiu Hanyi, a Jingyi Futures Co. Ltd. analyst, said gold prices were expected to continue rising amid surging oil prices in the world market and domestic inflation pressure.

“But investors should still keep alert to the trading risks,” the analyst said.

China’s gold consumption had presented a strong growth momentum in recent years. Sales in China, including Hong Kong and Taiwan, hit a record 363.3 tonnes last year.

Gold resources were estimated at 15,000 tons to 20,000 tons nationwide. Its proven gold reserves ranked seventh worldwide.

(Xinhua News Agency July 7, 2008)

Citic Securities Co has been forced to buy 407 million yuan (US$59.59 million) of shares in Shanxi Taigang Stainless Steel Co as the shares failed to be sold in an additional stock offering.

Taigang raised about 3.55 billion yuan by issuing 339 million shares and its underwriter Citic Securities purchased 39 million shares that investors didn’t buy, the steel maker said in a statement to the Shenzhen Stock Exchange yesterday.

Citic Securities, the country’s second-largest brokerage by market value, needed to pay about 407 million yuan for the Taigang shares at 10.47 yuan apiece.

Taigang will use the fund to construct a 1.5-million-ton stainless steel rolling mill, which will cost a total of 7.68 billion yuan.

The steel maker had invested 4.56 billion yuan in the mill last year.

The fund will also be used to repay bank loans and improve the company’s financial structure, it said in earlier statement.

Other investors included the country’s pension fund, Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Shanghai Pudong Development Bank and China Life Insurance Co.

Haitong Securities Co, China’s biggest brokerage by market value, bought a 26.6-percent stake in Shanghai Pudong Road & Bridge Construction Co earlier this month after failing to sell the contractor’s shares in an equity offering.

Haitong paid 980 million yuan to buy more than 92 million shares.

(Shanghai Daily July 31, 2008)

Western Mining Co said yesterday that first-half net profit fell 15.7 percent after zinc prices plunged, and it revised down its full-year production target.

Net income was 720.2 million yuan (US$105 million), or 0.3 yuan per share, in the first six months, down from 854.7 million yuan, or 0.44 yuan, a year earlier, the company said in a filing to the Shanghai Stock Exchange.

“The results were lower than expected, mainly because of a plunge in zinc prices and a rise in production costs,” GF Securities analyst Huang Yong said.

Western Mining dipped 0.08 percent to 13.12 yuan after the results.

Turnover rose 80.5 percent to 6.24 billion yuan, with contributions from its smelting and trading businesses, the Xining, Qinghai Province-based company said. But the decline in metal prices lowered its gross profit margins.

Zinc prices in benchmark London trading dropped 36 percent in the first half year on year.

Western Mining said its average sales price of zinc concentrate, which accounts for more than half of its output, fell 50 percent in the reporting period from a year ago. Lead concentrate prices rose 16 percent while copper concentrate prices were flat.

(Shanghai Daily July 31, 2008)

Aluminum Corp of China, parent of China’s largest producer of the metal, posted first-half sales of 70.4 billion yuan (US$10.3 billion), the Xinhua news agency said yesterday.

The state-owned metals producer had a profit of 7 billion yuan during the period.

(Shanghai Daily July 30, 2008)

Zijin Mining Group Co, owner of China’s largest gold mine, said yesterday first-half profit rose 45 percent as it raised production and benefited from higher bullion prices.

Net income climbed to 1.74 billion yuan (US$254 million), or 0.13 yuan a share, from 1.2 billion yuan, or 0.09 yuan a year earlier, Zijin said in a statement to Shanghai Stock Exchange.

(Shanghai Daily July 29, 2008)