STEEL products trader Van Shung Chong Holdings is eyeing steel processing in China after forging ties with Baoshan Iron and Steel Corp, the country's second largest maker of the alloy. Van Shung Chong, which sells rebars - concrete reinforcing bars - has placed a three per cent stake of 7.4 million shares with Baoshan Steel before its public offer of an additional 25 per cent. Director Andrew Yao said the two enterprises might co-operate in steel processing as well as trading. Van Shung Chong and Baoshan Steel formed a Shanghai-based steel-trading joint venture in November last year, the former taking a two-thirds stake. Mr Yao said the venture was considering setting up a warehouse in the city from which to supply rebars to Hong Kong developers with property projects in the mainland. The company has a warehouse of almost 60,000 square feet in Tuen Mun. Mr Yao expressed optimism about the mainland market, saying the country was now a net importer of steel products, with demand outstripping supply. He said China needed 100 million tonnes of steel a year, but produced only 80 million. Van Shung Chong noted the risks of expanding into China in its listing prospectus. The possibilities included rebar price fluctuations prompted by changes in world supply and demand, slowing sales because of China's new taxes on property and currency risks from increased exposure to the yuan. At present, the company sells most of its products to Hong Kong developers and builders, plus some traders who re-export rebars to China. Van Shung Chong is offering 61.67 million new shares at $1.08 each, with one free warrant for every five shares. The shares are priced at 6.8 times prospective 1994 earnings on a weighted average basis, or 8.3 times on a fully diluted basis. It expects an after-tax profit of $30 million for the year to March, 38 per cent more than last year's $21.7 million. William Kwong, managing director of New China Hong Kong Corporate Finance, the company's financial adviser, said the shares had been priced conservatively to attract subscribers to the listing and boost the possibility of the stock rising. The company will net $65.6 million from the new issue and share placement. It has earmarked about half of the proceeds for working capital. The rest will be used to repay bank loans and fund the Shanghai venture. Founded more than 30 years ago, Van Shung Chong is now one of the three largest rebar traders in the territory. The other two are Shougang Concord International Enterprises (formerly Tung Wing Steel Holdings) and a private company. The division accounted for about 83 per cent of company turnover in the six months to September last year. Most of its turnover comes from contract sales, with deliveries phased according to the builder's timetable but the price pre-set to minimise risk. The company also sells rebars at spot prices for immediate delivery. At the end of last year, it had orders on hand for about 162,000 tonnes of rebars. The company has diversified into the distribution of engineering plastics and plastic injection moulding machines. It also has a 19.6 per cent interest in a property joint venture in Kunming, Yunnan province, which will be completed next year. Mr Yao said that was only a passive investment, and the company had no intention of branching out into property development. The public offer runs from today until Monday. The company's shares and warrants will start trading in Hong Kong on February 18.