The mainland's largest steel-manufacturers are struggling to maintain their share in this year's cheapening market, but one small local producer expects to lift its turnover and profit. Guangzhou Iron & Steel Group expects to better last year's business of 4.62 billion yuan (about HK$4.29 billion), even as firms such as Baoshan Iron & Steel and Wuhan Iron & Steel languish in a market flooded by inexpensive steel produced by Confederation of Independent States, South Korean and Japanese manufacturers. That would not be easy, said Guangzhou Steel chairman and general manager Chen Mingde. However, Guangzhou Steel boasts advantages that other mainland steel producers do not enjoy, including a dedicated local customer base capable of absorbing nearly all its output as well as ancillary businesses that account for about half of the group's turnover. Guangzhou Steel is organised into three primary steel-producing companies: Guangzhou Iron & Steel, an A-share listed company on the Shanghai Stock Exchange since March 1996; Guangzhou Zhujiang Iron & Steel, a US$700 million investment that will start production nest year; and a Sino-Australian joint venture making stainless-steel products. The group's steel output is modest - this year reaching 1.1 million tonnes. It produces primarily hot-rolled and threaded steel that is sold to firms in Guangdong's Pearl River Delta. Even after Guangzhou Zhujiang comes on line, producing 792,000 tonnes of hot-rolled steel and 300,000 tonnes of cold steel sheets, output by 2000 is not expected to surpass two million tonnes a year. That represents a fraction of the steel produced by the mainland's main market players, but it hardly raises a shrug from Mr Chen. Much of the reason for his composure lies in Guangzhou Steel's tough scramble from money-loser to profit-spinner. The firm traces its origins to 1957 and the height of the mainland's Great Leap Forward campaign when Guangzhou Iron & Steel was established with a designed output of 46,000 tonnes a year. Burdened with vintage Soviet equipment and meagre operational capacity, the firm slogged through the 1970s mired in red ink. When the firm adopted the contract responsibility system in 1980, Guangzhou Steel turned its first nominal profit of 383,000 yuan. Profits on turnover remain thin - amounting to 168 million yuan last year. More importantly, perhaps, Guangzhou Steel has diversified in non-steel operations to a scale and success few of its mainland counterparts can match. The firm's non-steel holdings include six subordinate companies, engaged in activities from foreign trade and property development to restaurant management and welfare services. Their turnover accounted for about half the group's business last year. 'That's quite rare for a steel firm,' said Hoong Yik-luen, chief representative for ING Barings in Shanghai. 'Mainland steel firms have 70 to 80 per cent of their operations tied to their core business.' More unusual was to find non-core businesses - usually established to employ excess personnel - turning profits, Mr Hoong said. Despite his embrace of a 'small-is-beautiful' approach, Mr Chen and Guangzhou Steel remain at the centre of provincial and municipal government efforts towards developing a steel base in the Pearl River Delta. The firm plans to increase group output to 3 million tonnes a year with sales of 30 billion yuan by the end of the next decade. To support such development, the Guangzhou municipal government in June organised transfer to the group of three small, municipal steel-products makers. Guangzhou Steel is now obliged to absorb the three firms' 6,000 workers, which will join the 13,200 on the group's payrolls, along with substantial debts - two of the companies are in the red and the three manufacturers collectively held an asset-liability ratio of 57 per cent. Yet Mr Chen believed the acquisition was in the best interest of the group, providing greater steel-making capacity along with an enlarged product mix.