Tue, Aug 28, 2012 - Page 14 News List

China Steel to increase investment

By Kevin Chen  /  Staff reporter

China Steel Corp (中鋼), the nation’s largest integrated steel maker, has decided to increase its investment in Formosa Plastics Group’s (FPG, 台塑集團) Vietnam steel venture to help boost the latter’s investment and capital structure.

The Greater Kaohsiung-based company said in a statement yesterday its board agreed to increase its investment in Formosa Ha Tinh Steel Corp (台塑河靜鋼鐵興業) by US$40 million, a move that would help it maintain a 5 percent stake in FPG’s steel mill in Vietnam.

In 2010, China Steel invested US$135 million for a 5 percent stake in the FPG steel mill, which was capitalized at US$2.7 billion with a total investment of about US$80 billion, as the company aimed to have access to supplies of raw materials, such as semi-finished steel from the Formosa plant with lower transportation costs and market risks.

“China Steel has decided to increase by US$40 million its investment to maintain a 5 percent stake in that company, after Formosa Ha Tinh Steel Corp revised upward its total investment by US$2.117 billion and boosted capitalization to US$3.5 billion to improve financial structure,” the statement said.

China Steel itself has a cold-rolled steel mill in Vietnam, China Steel Sumikin Vietnam Joint Stock Co, which is a joint venture with Japan’s Sumitomo Metal Industries Ltd, established in 2009.

The company’s board yesterday also approved a plan to set up a sheet-cutting, processing and distribution venture in Qingdao City in eastern China’s Shandong Province, which will be capitalized at US$20 billion.

China Steel said it planned to invest US$12 million for a 60-percent stake in the venture, with the remaining shares held by its subsidiary China Steel Global Trading Corp (中貿國際) and local compressor maker Rechi Precision Co (瑞智精密), according to the statement.

China Steel said it hoped the investment would help it expand distribution channels in China’s Huabei region, which includes Beijing, Tienjing, Hebei Province, Shanxi Province and Inner Mongolia.

In Taiwan, the company’s board yesterday agreed to a 32-month reconstruction plan of its No. 2 continuous annealing line, beginning next month and running through April 2005, which is expected to help produce better products with lower costs and using less electricity, China Steel said.

The directors of the board yesterday also signed off on the management's financial report for the first six months, during which China Steel posted a net income of NT$1.95 billion (US$64.9 million), down 87.3 percent from NT$15.34 billion a year earlier, with earnings per share falling to NT$0.13 from NT$1.16 a year earlier. Revenue in the first half dropped 7.87 percent to NT$110.66 billion from NT$120.13 billion the year before.

Fubon Securities Investment Services Co (富邦投顧) analyst Kevin Lin (林茂揚) said the first-half results were in line with the company’s unaudited numbers released earlier, adding that he did not expect the company to present any profit turnaround in the short run.

"China Steel has cut its domestic list prices two times in a row and reduced output," Lin said in a note. "We are also skeptical about a long-term turnaround due to unfavorable supply and demand dynamics."

China Steel’s share price fell 0.38 percent to close at NT$26.0 in Taipei trading before the announcement. The stock has fallen 9.72 percent so far this year, compared with the 5.6 percent gain in the benchmark TAIEX.

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