Yizheng Chemical Fibre, the world's fourth-largest polyester-maker, has been saddled with losses in the first quarter, extending the misfortunes it suffered in the second half of last year, officials said yesterday. Managing director Ma Yuping said: 'The outlook for the polyester industry is more severe this year, in light of the Asian financial crisis.' He said polyester product prices and raw material prices continued to fall in the first three months, while sales also suffered a decline. Yizheng earned an annual net profit 44.3 million yuan (about HK$41.24 million) last year, against interim earnings of 113.16 million yuan, indicating a loss of 68.86 million yuan in the second half. The only bright spot was that losses at subsidiary Foshan Polyester were slashed by 30 per cent to about 70 million yuan. Without giving figures, Mr Ma admitted Yizheng was in the red in the first quarter. Last year, Yizheng's weighted average prices for its four products fell 16 per cent, against the 17 per cent drop in weighted average raw materials prices. Mr Ma said despite the smaller fall in product prices, the company saw a lower gross margin because of an increase in sales costs due to higher transport outlays. The gross margin was 12 per cent, compared with 13 per cent in 1996 and 20.4 per cent in 1995. Raw materials accounted for more than 70 per cent of total production costs. Mr Ma anticipated a recovery in product prices this year, while raw materials prices largely would be stable. 'It is possible for product prices to rebound from the bottom this year because upstream and downstream manufacturers are operating in a very difficult environment,' he said. Despite concern that Yizheng would lose flexibility in taking advantage of buying cheaper raw materials in the international market, deputy general manager Wang Shilin stressed the cost of buying from Yangzi Petrochemical was below imports which had to bear transportation costs. Both entities are under China Eastern United Petrochemical Group, which was formed in November by merging five enterprises in Nanjing, overseen by Vice-Premier Wu Bangguo. Yizheng vice-chairman Chen Jinfang said China Eastern, including Yizheng, would come under the banner of the southern petroleum and petrochemical group. The group was expected to be set up this year under an industry revamp announced last month. Yizheng chairman Li Yizhong is president of China Eastern as well as president of China Petrochemical Corp, charged with the responsibility of forming the southern group.