China, the world's largest consumer of metals, uses about 31 per cent of the world's non-ferrous metal and 32 per cent of its steel.

But Mr Wong said use of scrap steel accounted for only 14 per cent of steel production on the mainland, compared with more than 40 per cent in western countries.

'The useful life for steel is between eight and 10 years, but much of it in use in China today has only recently been put to use and has yet to reach the end of its useful life,' he said.

Mr Wong said domestic supply of scrap steel was expected to increase in the next few years as many products being used on the mainland, including vehicles and home appliances, had relatively short life spans.

The metal recycling industry would benefit from the government's energy and resource conservation policies, with tax incentives and other support measures expected to be introduced, said Heng Kun, an analyst at Essence Securities.

Using recycled scrap metal to manufacture steel in an electric arc furnace, rather than using iron ore in a blast furnace, uses 60 per cent less energy and water, according to the China Association of Metal Scrap Utilisation.

At the same time, it discharged 86 per cent less exhaust gases, 76 per cent less sewage and 97 per cent less waste than using a blast furnace, the association said.

Jacky Chun Chi-wai, China Metal Recycling's chairman and controlling shareholder, said the company was well positioned in the fast-growing industry.

The firm has recycling facilities in key metal-producing regions, mainly in coastal areas with convenient access to transport for both raw materials and products.

The company has recycling facilities in Guangdong, Jiangsu and Hong Kong with total designed annual production capacity of 1.6 million tonnes.

Its production capacity will be doubled in the third quarter of this year after new plants in Tianjin, Zhejiang and Jiangsu are completed. It also plans to open a recycling facility in Hubei next year with annual capacity of 500,000 tonnes.

Mr Chun said the company would look to expand its capacity and regional coverage through selective acquisitions.

The metal recycler reported a 72 per cent rise in net profit last year to HK$307.9 million on turnover of HK$6.53 billion. It expects net profit for the first six months of this year to be not less than HK$68 million, after accounting for HK$116 million in interest expenses incurred from the issue of US$80 million senior notes in October 2007.

The company, which will begin its public offering to Hong Kong retail investors today, is selling 300 million shares or 30 per cent of its enlarged share capital at between HK$3.98 and HK$5.18 each.

The offer represents 13.5 times to 17.6 times the company's earnings last year, according to its listing prospectus.

Market sources said prominent funds including Atlantis Investment had placed big orders for the shares of the metal recycler.

However, Francis Lun Sheung-nim, the general manager of Fulbright Securities, said he was not overly impressed with the share offer, as up to 61 per cent of the proceeds would be used to redeem high-interest senior notes with an effective interest rate of 18 per cent.

Part of the notes were sold to UBS, the sponsor of the share-sale deal.

'I think China Metal Recycling is a 'made-to-order' company by UBS. Its growth story is mainly driven by mergers and acquisitions, not by organic growth,' Mr Lun said.

'I think the company is a 'speculator', not an 'operator'.'

But Mr Wong said the interest rate of the senior notes was 'not especially high', considering the equity of the company at that time.

'We only had HK$600 million equity when we issued the senior notes, it was not easy for the company to borrow so much money for expansion,' Mr Wong said.

A large part of the fund raised from the notes was used for capital expenditure.

Mr Wong said the China Metal Recycling would become a debt-free company after redeeming all the notes and could borrow bank loans backed by the its accounts receivable at a much lower interest rate afterwards.

Pedal to the metal

China Metal Recycling (Holdings) is expected to raise up to HK$1.55 billion from the share sale. The proceeds will mostly be spent on new production facilities that will more than double recycling capacity

The IPO in numbers

Stock code 773

Offer period June 10-15

Board lots 600 shares

Listing date June 22

What the analysts say

Kenny Tang Sing-hing, head of research, Redford Asset Management

Pros: The metal recycling industry will benefit from energy conservation policies

Cons: Shares of private companies always trade at a discount to those of their state-owned peers, raising doubts over the recycler's performance

Francis Lun Sheungnim, general manager, Fulbright Securities

Pros: The firm's profit is expected to double this year and its growth prospects are good

Cons: China Metal Recycling is a 'made-toorder' company by UBS. Its growth story is mainly driven by mergers and acquisitions, not by organic growth

Heng Kun, analyst, Essence Securities

Pros: The demand for scrap metal will continue to increase with industrialisation and Urbanization

Cons: Drastic changes in metals prices in a short time, as happened in the second half of last year, will have a big impact on the company's profitability