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August 28, 2009

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Mill's net falls as demand melts

WUHAN Iron and Steel Co's earnings in the first half of the year plunged 90 percent as a slowing Chinese economy melted demand.

The Hubei Province-based mill also said it plans a rights offer to buy assets from its state-owned parent.

Net income at China's third-largest mill plunged to 506 million yuan (US$74 million), or 0.065 yuan a share, in the first six months from 4.9 billion yuan a year earlier due to weakening demand amid the slowing domestic economy, the company said late Wednesday.

Its net profit was 243.5 million yuan in the second quarter, not much below its first-quarter earnings of 262.5 million yuan, according to calculations.

This is in contrast with many other domestic mills whose earnings improved quarter on quarter as they raised output and prices on hopes the government stimulus package would bolster demand.

"This (profit drop) may be because Wuhan's steel price increase lagged that of the market," said Changjiang Securities analyst Liu Yuanrui. "It may also be due to the company not making a sufficient provision against inventory late last year, which led to cost pressure in the second quarter."

Wuhan Steel's first-half earnings actually also included a gain of 214 million yuan from financial investments, further evidence of its dismal main business.

The mill forecast net profit for the first nine months will tumble more than 50 percent from the same period last year.

The company also said it aims to raise up to 12 billion yuan in a rights offer to buy assets, including a majority stake in a construction steel company, from its parent. It will offer shareholders three new shares for every 10 held.


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