Business

Hunan Valin Steel Group Co has agreed to form a US$948-million joint venture with the world’s top mill, ArcelorMittal, in China to produce silicon electrical steel, used in the power sector.

Meanwhile, Valin’s listed unit said it would invest in Australian iron ore firm Golden West Resources Ltd to secure raw material supply.

The new 50-50 joint venture needs total investment of 6.5 billion yuan (US$948 million) and will start in 2010. The venture will compete with Wuhan Iron & Steel Co and Baosteel Group Co in the field of electrical steel that can be used in transformers, electric motors and generators.

It is capable of producing annually 400,000 tons of non-grain oriented and 200,000 tons of grain oriented steel, two main types of electrical steel, ArcelorMittal said, adding it will transfer its latest technologies to the venture. This is another example of ArcelorMittal working with Valin to expand in China’s steel market, while facing setbacks in direct stake purchases in other Chinese mills.

ArcelorMittal, based in Luxembourg, recently agreed with Valin and its listed unit Hunan Valin Steel Tube & Wire Co, to build a plant for automotive steel products. Valin Steel Tube, based in Changsha, Hunan Province, is part owned by ArcelorMittal.

“It’s clear Valin’s strategy is to use the technology supports from the venture partners to boost its profitability,” Sinolink Securities analyst Zhou Tao said in a report, adding their next cooperation may be in the stainless steel sector. Valin Steel Tube will provide 600,000 tons of hot-rolled sheets a year to supply the new venture. The listed arm didn’t have a stake in the latest JV mainly due to concerns on risk and capital, Zhou said.

Meanwhile, listed Valin will buy 14.4 million new shares, or 11.4 percent of enlarged share base, in Golden West for A$26.6 million (US$23.4 million) in a private placement.

They also agreed that the Australian firm, still in exploration stage, would supply up to 4.5 million tons of iron ore a year to Valin over 15 years when production started.

(Shanghai Daily August 14, 2008)

Angang Steel Co, China’s second-biggest steel maker, said raw-material costs may rise faster than steel prices in the second half, squeezing its profit margins.

The average selling price for its products in the third quarter will be between 5,800 yuan and 5,900 yuan a ton, board secretary Fu Jihui said yesterday in Hong Kong. That’s as much as 5.4 percent higher than in June, and lower than the 6,116 yuan forecast by Credit Suisse Group.

Chinese steel makers need to keep raising steel prices as the costs of iron ore, coking coal and energy had jumped to records. Steel prices in China are heading for a fourth straight week of decline on concerns China’s capacity growth may outpace demand, said Beijing Antaike Information Co.

Profit “margins may be under pressure,” Fu said at a press conference, without giving details.

Angang fell 3 percent to close at HK$10.30 (US$1.32) in Hong Kong trading. The stock has dropped 52 percent this year, compared with a 23-percent decline in the key Hang Seng Index.

The company this week reported a 25-percent gain in first-half profit to 5.99 billion yuan (US$873 million) after it raised prices to benefit from higher demand, according to Bloomberg News.

Contract iron ore prices gained as much as 97 percent this year, while coking coal prices have more than doubled for Chinese mills.

(Shanghai Daily August 14, 2008)

Wuhan Iron & Steel Co, one of China’s major mills, said first-half net profit increased 36.5 percent to a record on higher demand and prices despite lower margins.

The company earned 4.9 billion yuan (US$714 million), or 0.627 yuan a share, in the first six months. Operating revenue gained 40.2 percent to 37.3 billion yuan on the back of higher sales and prices, the central Hubei Province-based steel maker said in a filing to the Shanghai Stock Exchange.

Steel production rose 23.1 percent to 7.2 million tons` during the reporting period, it said.

Mills are raising product prices to pass on higher raw material and fuel costs to end users in China amid rising demand.

Higher costs had dragged down its gross margin for its steel products by 4.62 percentage points to 20.99 percent in the first half, Wuhan Steel said.

China’s large mills have agreed to another rise in annual contract prices for iron ore of up to 96.5 percent with Brazilian and Australian miners for the year starting April 1, and prices for coking coal also doubled this year.

Smaller mills, mainly fed by costlier spot iron ore, could be more affected by the production costs, making bigger ones more competitive domestically.

Sinolink Securities analyst Zhou Tao said in a report that Wuhan Steel’s half-year results were in line with expectations, and the second-quarter was better than the first quarter. Zhou said price rises for the third quarter could offset production cost hikes.

“Third-quarter earnings could remain flat like in the second quarter, but the final quarter would be a bit lower as it’s a traditionally weak season,” Zhou said.

Wuhan Steel rose 1.3 percent to close at 7.82 yuan yesterday after the results, bucking a 5.21-percent slump in the Shanghai Composite Index.

(Shanghai Daily August 12, 2008)

Angang Steel Co, China’s second-biggest steel maker, said first-half profit rose 24 percent after it raised prices to benefit from higher demand.

Net income rose to 5.98 billion yuan (US$872 million), or 0.827 yuan a share in the six months ended June 30, from 4.83 billion yuan, or 0.81 yuan, a year earlier, the Liaoning Province-based company said in a statement to the Shenzhen Stock Exchange yesterday, citing domestic accounting standards. Sales rose 23 percent to 40.2 billion yuan. Profit would be 5.99 billion yuan by international accounting standards, the company said, without giving a percentage gain.

(Shanghai Daily August 12, 2008)

China Unicom will spend as much as 100 billion yuan (US$14.7 billion) to expand its network to prepare for high-speed third-generation services in China, the country’s second-biggest mobile-phone operator said yesterday.

China Unicom’s investment budget will cover spending in 2009 and 2010, the Beijing-based telco said in a statement to the Hong Kong stock exchange yesterday.

China Unicom, listed in Shanghai and Hong Kong, expects to gain a license for 3G mobile phone services when it completes its acquisition of China Netcom under an industry revamp that is due to complete at the end of this year.

China Telecom will pay 44.8 billion yuan for China Unicom’s CDMA (code division multiple access) business, also part of the government revamp.

Three 3G licenses will be issued when the industry restructuring is completed, the government said in May.

China Unicom shares dropped 2.5 percent to 5.85 yuan yesterday against a 0.44-percent fall in the key Shanghai stock index.

China Telecom, the country’s No. 1 fixed-line phone operator, will invest 80 billion yuan on the wireless network business that it will acquire from Unicom.

(Shanghai Daily August 14, 2008)

China’s steel exports swelled to 7.21 million tonnes in July, up 21.38 percent year on year. The amount was 1.99 million tonnes more than June, China Securities News reported on Tuesday, quoting China Customs statistics.

Experts attributed the surge to the deferred export of June’s alloy steel.

Tianjin Port started to check alloy steel exports in June. “At least 700,000 to 800,000 tonnes of alloy steel were kept within the harbor till July because of the half-month checking time,” said umetal.com analyst Zhang Ping.

“The 5 percent tax rebate on alloy steel was also part of the reason for the export surge.”

Spurred by rising prices on the international market, the country’s steel exports have showed signs of rebounding since March. The upward trend urged Chinese Customs last month to suggest reinforcing supervision over steel exports to prevent it from getting out of control.

Customs statistics showed national steel exports stood at 34.15 million tonnes in the first seven months this year, down 14 percent over the same period in 2007.

July’s net export, however, reached 5.77 million tonnes, representing a 45.7 percent month-on-month increase.

(Xinhua News Agency August 12, 2008)

People in the Pearl River Delta cities of Guangzhou, Shenzhen, Foshan and Dongguan might soon be able to surf the Internet using a unified wireless network, provincial authorities have said.

Nanfang Daily reported yesterday that the provincial information industry department has completed a report on the construction of a wireless city group in the region, and it has been approved by the respective provincial governments.

“Construction of a wireless city group entails coordinated planning and gradual promotion. It needs to define the role of each government and their work divisions,” Wang Wei, a deputy director of the department’s administration office, was quoted as saying.

Details about costs and date of construction are not yet available.

Liang Qi, a professor at Sun Yat-sen University, said construction of a wireless city group will sharpen the competitive edge of the area.

“The provincial authorities have reached a consensus that the Pearl River Delta cities should be integrated to strengthen its foothold in global competition. Wireless infrastructure and services are necessary in the digital age,” he said.

Qin Zhiqiang, deputy secretary of WAPI (WLAN Authentication and Privacy Infrastructure) Industry Alliance, an organization promoting local industry standards, said the role of the local governments is to plan and balance the interests of all for sustainable development of the wireless city group.

“Profitability is crucial for sustainable development of the sector,” he said.

Several cities in China have begun construction of wireless networks, and some of them like Beijing, Shanghai and Hangzhou have already begun trial operations.

In Beijing, a wireless service is now available in areas within the Third Ring Road via terminals with WiFi or WiMax functionality. It is expected to cover areas within the Fifth Ring Road by the end of the year, and the whole city by 2010.

(China Daily August 14, 2008)

New mobile communications devices aimed at foreign visitors will be launched during the Olympics period in Shanghai, China Mobile’s Shanghai branch said yesterday.

The devices will include multi-language customer services, mobile phone hire, wireless Internet access and BlackBerry,

During the Olympics all Shanghai Mobile outlets will provide both Chinese and English services and the customer hotline services will answer questions in Chinese, English and Japanese.

“We have recruited and trained talent to help our overseas friends who are here for the sports,” said Xu Ke, the customer service division manager at Shanghai Mobile.

Visitors can rent 2G phones and home-grown 3G TD-SCDMA (time division-synchronous code division multiple access) phones at the carrier’s outlets, airports and Olympics-designated hotels.

TD-SCDMA signals cover 98 percent of the city’s downtown area, and the network has been upgraded for 3.5G to support data services like mobile TV.

People can get free Wi-Fi services in all Shanghai Mobile’s outlets and places in airports, hotels and stadiums during the Olympics.

Shanghai Mobile has more than 10,000 BlackBerry users, half the national level. During the Olympics, visitors can subscribe to BlackBerry with a Shanghai Mobile SIM (subscribe identity model) card or use the roaming services.

China Mobile has cut the roaming and long-distance fee during the Olympics.

(Shanghai Daily August 8, 2008)

Major Chinese textile companies have said that the recent adjustment in tax rebates will lead to increased profits in the short term, but the long-term impact would be limited.

Jiangsu Sainty Corp Ltd, a major exporter of garments based in Jiangsu province, said in an announcement: “The export tax rebate adjustment will increase the profitability of contracts signed before in the short term,” but will have “no major influence” on the company’s profits for the whole year.

While the company acknowledged the positive impact the tax rebate would bring, it said the competitive nature of the garments industry and other factors such as a group’s ability to bargain and the development of the domestic and international markets, would also affect profits in the sector.

Jiangsu Kaiyuan, another major trader in the textile industry, said there would not be any obvious impact on the company’s profits since foreign clients would try to cut down prices once they learn about the tax rebate.

Zhao Meiling, an analyst with Essence Securities, agreed that the tax adjustment was good news in the short term, but would not change the overall trend of the industry.

Zhao said the adjustment could help release the pressure of SMEs relying heavily on exports. But since China’s textile industry overall lacks brands, and they mainly make low value-added products, they possess little bargaining power and the profits from the tax rebate would go to foreign importers rather than the domestic enterprises themselves.

He said technology innovation and industry upgrades were the only ways for the industry to develop in the long run.

The Ministry of Finance increased tax rebate rates on some textile and clothing exports from 11 percent to 13 percent in the first pullback since the country largely cut the enterprise export tax rebate rate in September 2006.

The policy was meant to give a breather to enterprises whose profits have declined since the beginning of this year amid global economic slowdown, yuan appreciation and rising labor and raw material costs.

Data shows that in the first half of the year, exports of textile and apparel totaled $83.851 billion, an increase of 11.11 percent over the previous year.

(China Daily August 13, 2008)

Aluminum production in China, the world’s largest maker of the metal, may rise 16 percent to 14.6 million metric tons this year, Macquarie Group Ltd told Bloomberg News yesterday.

China’s aluminum production capacity is expected to reach 18.6 million tons a year at the end of 2008, analysts led by Bonnie Liu, wrote in an e-mailed report. China is also the world’s largest consumer of the metal used in airplanes, cars and many other products.

“China’s aluminum industry is extremely competitive in terms of its low (capacity expenditure) costs and resulting very quick payback period compared with aluminum smelters elsewhere in the world,” the analysts said.

There are about 5.8 million tons of aluminum smelting projects under construction, which are set to be finished by the end of 2009, the report said. In addition, there are 2.4 million tons planned or proposed projects to be developed by domestic smelters before the end of the decade, the report said.

“We believe that China will remain a major supplier of aluminum units to the rest of the world, but different tax treatments mean that it will be much more attractive to export products than metal or alloys,” the report said.

(Shanghai Daily August 5, 2008)