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Maanshan Steel Second-Half Profit Falls 95% on Slower Demand

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March 23 (Bloomberg) -- Maanshan Iron & Steel Co., the second-biggest Hong Kong-traded steelmaker, posted a 95 percent slump in its second-half profit because of higher costs and slowing demand from builders and automakers.

Net income was 60 million yuan ($9.2 million) in the six months ended Dec. 31, compared with a profit of 1.19 billion yuan a year earlier. The result was derived by deducting six-month figures from full-year profit released today on the Hong Kong stock exchange.

Slowing demand from vehicle and appliance makers in the second half and high iron ore costs have depressed the average profit margins of Chinese steelmakers to just 3.5 percent in 2010, the lowest of any industry, according to the government. China’s gross domestic product grew 9.6 percent in the third quarter, the smallest gain in a year.

“Profit margins of the steel industry may be further squeezed this year with iron ore costs and rising coal prices,” Maanshan Chairman Gu Jianguo said in the earnings statement.

Maanshan fell as much as 3.3 percent to HK$4.11 in Hong Kong today, trading at HK$4.14 as of 10:55 a.m. local time. The benchmark Hang Seng Index was down 0.3 percent.

Iron Ore Prices

Contract iron ore prices fell about 10 percent in the fourth quarter from the previous three months after gaining more than 20 percent in the third quarter.

Maanshan Steel posted a profit of 1.1 billion yuan in 2010, the highest in three years. That beat the 970 million yuan mean estimate of 15 analysts surveyed by Bloomberg. Sales rose to 63 billion yuan last year from 50.4 billion yuan.

The company boosted production of automotive sheets by 55 percent to 750,000 tons last year, appliance sheets by 71 percent to 1 million tons and doubled electric steel output to 430,000 tons, it said.

Parent Magang (Group) Holding Co., China’s biggest maker of train wheels, said this month that the government is testing the company’s products, including high-power locomotive wheels, which may replace imports as the nation embarks on a railway building program. The company is also waiting for approval to start trials on wheels for trains that can run at 250 kilometers (155 miles) an hour, Gu, also Magang Chairman, said March 8.

Maanshan also supplies carmakers including Chery Automobile Co. and Anhui Jianghuai Automobile Co.

To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net.

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