Raw materials companies battered on stock market

Raw material shares dipped further yesterday on concerns that credit restrictions adopted by Beijing to cool its economy may also curb demand for steel and concrete, analysts said.

"We started unloading steel and cement shares two months ago as signs surfaced early this year that China had to do something" to stem inflation and slow economic growth, said Jones Wang (王源錦), a deputy manger at ABN-AMRO Asset Management in Taipei.

ABN-AMRO plans to sell more of those stocks gradually, as the company expects raw material supplies to tilt towards a glut in the third quarter, after the Chinese government decided to stem excess investment in the steel and concrete sectors, among others, Wang said.

Overseas fund managers sold a net NT$6.6 billion worth of Taiwanese shares yesterday, which followed a NT$27.3 billion sell-off last Friday, the biggest ever by foreign investors, according to the Taiwan Stock Exchange Corp.

Steel shares dropped 3.8 percent yesterday, steeper than the benchmark TAIEX's 1.44-percent slide.

Shares in Taiwan's biggest steel supplier, China Steel Corp (中鋼), fell for the fifth session in a row, losing another 3.72 percent to end at NT$28.5 on the TAIEX yesterday. Cement shares fell 1.3 percent.

"China's restrictions on over-investment only affect smaller Chinese concrete plants with annual production below 100,000 tonnes," said an official at Chia Hsin Cement Corp (嘉新水泥).

"We expect the impact to be short-term," said Wei Yun-sun (魏雲孫), spokesman of Chia Hsin, which operates Hong Kong-listed Chia Hsin Cement Greater China Holding Corp (嘉新水泥中國控股) and produces 2.9 million tonnes of cement a year.

The Taiwanese company has already received approval from the Chinese government to open two new factories, he said.

Chia Hsin said its Chinese factory earned 51 million yuan (US$6.1 million) in the first quarter, compared to 60 million yuan in the first six months of last year.

However, the high growth was not enough to dissuade jittery investors from selling. Chia Hsin shares tumbled 3.97 percent to NT$13.3 yesterday.

"It's unavoidable that stocks that rely heavily on their Chinese operations for growth will decline further, as investors are turning bearish about the Chinese market," said Kevin Chung (鐘國忠), an analyst with Jih Sun Securities Investment Consulting Co (日盛投顧).

China Motor Corp (中華汽車), a commercial automobile maker that sells cars in China through Chinese joint venture Southeast Motor Co (東南汽車), is a good example, Chung said.

China Motor shares dropped below those of local car dealer Hotai Motor Co (和泰汽車), a rare occurrence, he said.