CITIC Pacific Ltd, the Hong Kong-listed branch of China's largest State-owned investment company, posted a 12 percent decline in first-half earnings with rising material costs and a loss from its stake in Cathay Pacific Airways.

The company's net profits fell to HK$4.38 billion from HK$4.97 billion a year earlier. Its total revenue climbed 44 percent to HK$28.3 billion, while cost of sales jumped 64 percent to HK$22.9 billion.

CITIC Pacific has expanded into special steel business in three provinces and recorded a strong growth of 64 percent to HK$1.8 billion in the first half.

Cathay Pacific, Hong Kong's largest carrier, however, posted a loss due to fuel costs that almost doubled to HK$663 million in the period, pushing down the company's overall earnings.

In the first half, CITIC Pacific saw a significant rise in price of raw materials such as iron ore and coke, according to a statement on the stock exchange. The aviation and power generation businesses suffered a loss because of the rising oil and coal prices.

Chairman Larry Yung said: "We are cautiously optimistic about our special steel business in the second half because of the nation's steady economic growth and the central government's policy of strengthening public infrastructure investment."

He also added that average steel price fell to 600 from 800 yuan per ton in August after market correction. "I think special steel price may also drop," he added.

The company's special steel unit saw its profits rise to HK$2.25 billion from HK$1.5 billion a year earlier.

During the period, CITIC Pacific made its strategic focus in its iron ore mine in Western Australia to combat the rising price of iron ore in the international markets.

"Seventeen ships were ordered for the Australian iron ore project to lower transportation cost." Yung said.

A total of $38 billion will be injected into this project this year to secure a stable supply of iron ore for its domestic steel production in the future. The mining-shipping operation is expected to commence by the end of 2009 or early 2010 and it will provide 27.6 million tons iron ore per annum by mid 2012.

The company will give an interim dividend of HK$0.30 a share this year, 25 percent lower compared with HK$0.40 per share last year. The reduction was intended to reserve money for buying back some of its shares on the market, said managing director Henry Fan.

(HK Edition 08/29/2008 page2)