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China Steel denies merger rumors

China Steel Corp (中鋼), the nation's largest steelmaker, denied a newspaper report that it is considering merging two units to compete with international rivals.

"We're strengthening our business relations but aren't considering a merger," Chung Lo-min (鍾樂民), China Steel executive vice president, said in a telephone interview from Kaohsiung yesterday.

China Steel is evaluating whether to merge with the units Chung Hung Steel Corp (中鴻) and Dragon Steel Corp (中龍), or combine the two, the Chinese-language Economic Daily News reported yesterday, citing an unidentified China Steel official.

China Steel is studying a strategic alliance to help repel hostile bids though the company hasn't acted on possible cross shareholdings, Vice President Chang Ching-hsing (張景星) said this month. Mittal Steel Co, which last month sealed its US$38.3 billion takeover of Arcelor SA to create the world's largest maker of the alloy, may target steel mills in Asia to tap economic growth rates of more than 10 percent.

Dragon Steel, which is 70 percent owned by China Steel, is building a furnace to produce slabs that Chung Hung needs, he said. Chung Hung, in which China Steel holds a 40 percent stake, makes cold and hot-rolled steel, Chang said.

Hot-rolled steel is raw material for cold-rolled steel, which is used to make car bodies and home appliances.

Meanwhile, China Steel said profit in the second half will improve from the previous six months because rising demand drove up product prices.

The company raised prices 11 percent for the third quarter after increasing them slightly more than 1 percent in April-June, Chung said on Tuesday.

The steel market in China, which buys about 10 percent of the Taiwanese steelmaker's products, is recovering after prices fell 31 percent last year. Customers in Taiwan are also buying more of the metal for construction and upstream manufacturing.

"We're fully booked for the third quarter [of this year]," Chung said. "Demand improved."

China Steel posted pretax profit of NT$16.5 billion for the first half, the company said in a statement on Monday. That represents a 61 percent decline from NT$42.3 billion for the same period last year, according to Taiwan Stock Exchange data.

The steelmaker's tax rate is about 25 percent, said Chung, who declined to offer an outlook for the fourth quarter. The company is due to release first-half net income by end August.
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