Chaoyue to Acquire Scrap Metal Producers for HK$10 Billion

Chaoyue Group Ltd. agreed to buy two Chinese makers of stainless steel and copper products for HK$10 billion ($1.3 billion) after selling its main water purification businesses last year.

Chaoyue will pay Chung Ming Metal Resources Holdings Ltd. HK$3 billion in cash, with the balance in shares and convertible bonds, it said today in a statement.

Buying Chung Ming Metal gives Chaoyue control of one of the top 10 producers of scrap-based stainless steel and one of the top five makers of scrap-based copper in China as the nation makes resource recovery a priority, Chaoyue said.

“With its large production and extensive use of scrap metal in production, the target group is well positioned to capture growth in demand for stainless steel and copper products,” Chaoyue said in the statement. “The group has been focusing on finding suitable investments that present development opportunities and also able to provide a sustainable stream of cash flow and profit.”

Chaoyue was unchanged at 55 Hong Kong cents as of 3:19 p.m. local time, paring earlier gains after jumping as much as 27 percent, the most in a year, as trading resumed this morning following more than a month of suspension. The benchmark Hang Seng Index fell 0.3 percent.

Copper Imports

The target operations have capacity to make 750,000 metric tons of stainless steel and 140,000 tons of copper products a year. Chaoyue is seeking to tap the recycled metal market in China after selling its water purification equipment and most of its stake in a mining operation last year.

China’s scrap copper imports dropped by 9 percent to 2.41 million tons in the first seven months of this year, from a year ago, according to the General Customs.

The implied Chinese import price for scrap copper has risen 5.9 percent this year to $3,126.61 a metric ton as at June 30 because of supply tightness, according to a Bloomberg Industries calculation based on the import value and the volumes of the scrap shipment.

Refined copper production in China may fall 500,000 tons in 2013, or about 9 percent of last year’s output, on a scrap shortage and delayed commissioning of new facilities, Chen Jie, head of sales and marketing unit of Jinchuan Group Co., the nation’s third-largest producer of the metal, said May 24.

Stainless-steel production in the country gained 9.6 percent to 8.82 million tons in the first six months from a year ago, the Stainless Steel Council of China Special Steel Enterprises Association said on its website.