Published October 24, 2008

Delong sees Q3 loss due to poorer margins

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CITING the worsening global economic climate, Delong Holdings said that it expects to incur a loss for the third quarter ended Sept 30 due to eroding margins.

The Chinese manufacturer of hot rolled steel coils also confirmed a Reuters report that it has cut back on steel production and put some workers on unpaid leave given weaker demand for its steel products.

Production at four of its older blast furnaces were reduced. The four blast furnaces contribute about 30 per cent to the group's total annual production capacity.

Delong said that it will gradually increase its capacity utilisation rates when the demand situation for steel products improves.

But it assured shareholders that despite the tighter credit market, it has sufficient financial resources to meet its working capital requirements.

'The Group has existing secured and unsecured credit facilities with various domestic and foreign financial institutions which can be called upon if any such need arises,' Delong said in a SGX announcement.

The tight credit market has forced its industry peer FerroChina into insolvency two weeks ago. FerroChina is currently in talks with the Changshu City government and the creditors of one of its subsidiaries on the possibility of resuming partial operations at one of its plants to generate cash flow to sustain further operations and repay creditors.

The rapid growth of China's economy has set off a frenzy for iron ore over the past three years. But the slowing global economy and the end of the Olympic Games, which required huge construction efforts, have reduced the demand.

Earlier this month, plunging domestic steel prices have prompted four big state-owned Chinese steel makers to agree to production cuts by as much as 20 per cent until year-end in an effort to put a floor under falling product prices.

Hopes that Evraz Group SA, Russia's biggest steelmaker by market value, will boost its stake in Delong have lent some support to Delong's share price.

Evraz owns 10 per cent of Delong and has options to take a 51 per cent stake.

The stock last traded at $1.38. It has requested for the lifting of its trading halt today.