Conglomerate CITIC Pacific, the largest manufacturer of special steel in China, posted a 50 percent gain in profit in 2010, driven by the excellent performance of the company's two steel plants and sales of non-core assets, the company said on Thursday.

For the 12 months ended Dec 31, profit was HK$8.92 billion or HK$2.44 a share, up from HK$5.95 billion or HK$1.63 a share during the previous year, said the unit of CITIC Group, China's biggest State-owned investment company, in its annual results statement.

Special steel includes electrical, alloy, stainless and tool steels.

Sales increased to HK$70.6 billion from HK$46.4 billion, up 52 percent. The company proposed a final dividend of HK$0.45, up from HK$0.40 in 2009.

The company's two steel plants increased their profit contribution compared with 2009 by 49 percent, totaling HK$2.1 billion. It's CITIC Pacific's single largest profit contributor.

The company sold a total of 6.6 million metric tons of special steel products in 2010, driven by domestic demand from the auto and industrial manufacturing sectors as well as a revived overseas market. Due to a rise in raw material costs, prices of the company's major special steel products were about 18 percent higher compared with 2009, according to the statement.

CITIC Pacific said it is also on target to achieve annual steel producing capacity of 9 million metric tons in 2011.

However, due to investment in an iron ore mine in Australia, expansion of its special steel business and property projects on the mainland, the company's current liabilities increased to HK$43.1 billion, pushing up the leverage ratio to 46 percent at the end of 2010.

"This is higher than ideal but not something I am overly concerned about as CITIC Pacific is coming to the end of a major investment period," said Chairman Chang Zhenming.

"The number one priority for CITIC Pacific and its management continues to be constructing its mine in Western Australia and bringing it into production as early as possible," said Chang.

The company also sold a number of assets, for HK$3 billion, to focus on iron ore, steel, and property, after the company was bailed out for losses incurred on currency bets in 2008.

The company's target is to start exporting iron ore in the latter part of this year after testing the first production line by the end of July. The company had earlier said it planned to start exporting in the first half of 2011 as it reported its interim results in August, 2010.

The mine is a 28 million-metric-ton iron ore project located in Western Australia's Pilbara region. Total investment amounted to $5.2 billion.

Managing Director Zhang Jijing said if everything goes well with the first production line by the end of July, the remainder of the production lines will be ready in a year. He said annual production is estimated at 24 million metric tons for the first two phases. CITIC Pacific's own steel plants will consume less than one-third of the output, with the rest being sold to other steel plants on the mainland, said Zhang.

"The price of ire ore is very favorable. The trend pertains our Australia project will make material contribution to our profit," said Zhang.

Last May the Australian government proposed a "windfall tax" on miners after prices of ire ore and other commodities surged. Zhang said the Australian government is working on the details and expects to make it effective as early as July 1, 2012. He said the impact of the tax is hard to predict at the moment, but CITIC Pacific is lobbying for differential treatment, as its product requires processing and contains added-value compared with ordinary ire ore on the market.

Bloomberg contributes to this story.

China Daily

(HK Edition 03/04/2011 page3)