China Nickel Resources Holdings, the mainland's nickel-based steelmaker, expects the company's operating environment will stabilise despite a bearish market for steel. Steel demand on the mainland has been weak since July and steel prices have fallen about 17 per cent from peak levels. With consumers expecting lower prices and observing lower input costs, buyers were not entering the market in anticipation of lower prices, investment bank Citigroup said yesterday in a report. 'Although the mainland steel industry is facing challenges in the second half of the year, China Nickel products mainly cater to customers with huge demand and which require high quality steel, such as for machinery and railways, so the impact on the company is smaller,' chairman and chief executive Dong Shutong said yesterday, after the company reported a 64.5 per cent plunge in first-half profit. Mr Dong said China Nickel would leverage on its iron-nickel mine in South Kalimantan in Indonesia where it had secured exclusive rights to buy 40 million tonnes of ore over 29 years. The company will gradually extend its products to higher valued-added nickel metal, cobalt products, stainless steel and anti-quake steel to meet increasing market demand of such products. Mr Dong also said the company's two new plants - in Gongyi, Henan province, and Indonesia - would come on stream next year and 2010 respectively, and could increase the firm's annual output value more than fourfold to 10 billion yuan (HK$11.37 billion). In the first six months of the year, China Nickel reported turnover of 1.01 billion yuan, down 19.76 per cent from a year earlier. Net profit fell to 97.34 million yuan from 274.35 million yuan because of falling product prices and increased finance cost. During the period, the average unit selling price for its key product - stainless steel-base material - was 8,135 yuan per tonne, down 24 per cent from 10,759 yuan a tonne a year earlier but 10 per cent higher than the 7,385 yuan a tonne in the second half of last year. The drop in prices dragged down the company's gross profit margin 13 percentage points to 20 per cent. During the period, it sold 3.9 per cent more stainless steel-base material to 104,619 tonnes, accounting for 82 per cent of the company's total sales volume. China Nickel's finance costs rose 279.44 per cent to 88 million yuan in the first half because of an increase in interest expenses for the HK$2 billion five-year convertible bonds it sold in December last year.