Scandal-hit China Zhongwang to build new plants
Embattled aluminium producer China Zhongwang will spend US$3.8 billion buying equipment to build new production facilities.
The Liaoning based company, which has suffered a series of corporate governance scandals, wants to build new plants that will produce 3 million tonnes of flat-rolled aluminium, a high end metal used in everything from drinks cans to cars, annually by 2018.
Zhongwang currently supplies extruded aluminium, which is used to make railway carriages and in house-building.
It is targeting new markets after issuing three profit warnings this year. Zhongwang's net income for the half year to June fell 80 per cent on the same period for last year. The firm blamed its earnings collapse on a US trade ruling in March that slapped high anti-dumping duties on some of its products after a government inquiry found cheap Chinese aluminium imports were harming US producers.
Bank of China analyst Luo Rongjin called Zhongwang's target of selling 3 million tonnes of flat-rolled aluminium a year risky, saying the firm faced stiff competition from established suppliers such as Aluminium Corporation of China (Chalco).
'In China at the moment, the total output of flat-rolled aluminium is less than 8 million tonnes,' Luo said.
China Zhongwang declined to comment.
The aluminium supplier joined the Hong Kong stock exchange in May 2009, raising HK$9.8 billion in a deal that was priced at HK$7 a share and made chairman Liu Zhongtian one of the mainland's richest men.
The shares have since declined to HK$2.54. They fell 3.5 per cent yesterday.
In September 2009, mainland newspaper The Economic Observer alleged that the top 10 customers Zhongwang named in its listing prospectus did not buy from the company in 2008.
The firm hired Ernst & Young to clarify the uncertainty, but the Big Four accountant said it was not able to complete its review.
In 2008-09, Zhongwang's US exports grew rapidly. Its export figures appeared to contradict American customs data.
The Liaoning firm sold just 214 million yuan (HK$260.8 million) worth of extruded aluminium to the US in 2008, increasing to 5.66 billion yuan in 2009.
According to American customs data, however, the nation imported only US$514 million worth of extruded aluminium from China in 2009. Zhongwang has previously claimed the US data only covered certain classes of its products.
In a stock exchange announcement late on Monday, the Liaoning company said three state-owned enterprises would purchase the US$3.8 billion worth of equipment for its new plants.
Two of the three do not state such activities as a core business.
One is China Electronics Technology Group, which supplies technology to military and aerospace customers. Another is China Electronics, which designs integrated circuits for applications including electronic payment cards.