REMOVAL of steel price controls saw Maanshan Iron & Steel Co's (Magang) adjusted profits jump 230 per cent to 1.34 billion yuan (about HK$1.18 billion) last year. The company, whose $3.93 billion share offer in Hong Kong was by far the largest flotation by a Chinese state-owned enterprise, said its pro forma after-tax profit was 1.75 billion yuan for the year to December 31. The adjusted profit has been arrived at after making adjustments to reflect the various taxes, levies and iron ore prices which the company would have paid during the year had it been listed for the whole year. It was listed on the Hong Kong stock exchange on November 3 last year. The Anhui iron and steel maker, which ranked sixth in steel output and fifth in sales in China, had results broadly in line with its prospectus forecast. It had projected profits of no less than 1.25 billion yuan on an adjusted basis when it applied for a listing. The company's per-share earnings on a weighted average were 30.89 fen on an adjusted basis (40.38 fen before adjustment) and fully diluted 20.84 fen adjusted (27.24 fen before adjustment). A final dividend of 1.8 fen per share was declared. Like other Chinese state-owned enterprises, Magang included a provision of 77.82 million yuan as transfer to statutory surplus reserve for the three months from September 1 to December 31. An equal provision was made for transfer to collective welfare fund. The accounting treatment will be the same as that of Guangzhou Shipyard which caused a controversy three weeks ago. Analysts said Magang's results were within expectations as it was listed in November, enabling a closer forecast to be made by the company at that time. ''The impressive profit rise is due largely to the Government's lifting of controls on steel prices since January 1993. Strong economic growth also boosted sales,'' said Wilson Yung, an analyst at Asia Equities. The removal of controls saw steel prices soar, which translated into handsome revenues for the company. On the back of increased sales, turnover jumped 70 per cent to 6.23 billion yuan, compared with 3.66 billion yuan in 1992. But analysts said Magang would face a tough 1994. ''This year will be critical for Magang,'' said Desmond Cheung, an analyst at PBI Securities. ''Profit outlook will be flatter this year. Per-share earnings are also expected to fall because of the dilution effect from the issuance of A and H shares,'' he said. Steel prices in China have now come off the peak in the first half of last year. Demand for steel on the mainland has also slowed as the austerity programme took its toll in the second half. Vice-chairman and general manager Li Zongbi expressed optimism towards this year, which analysts saw as a less favourable environment for the company. ''Artificially high steel prices are not welcomed,'' he said. Although there was a slight decline in steel prices, Mr Li said prices were still 2,750 yuan a tonne, about the same as in the first half of last year. Analysts said steel prices in China were still 10 per cent higher than the international level, while China's bid to re-enter the General Agreement on Tariffs and Trade (GATT) had been a concern to the company. Still, the company believed that demand for steel products in China, where most of Magang's products were sold, would remain high given the strong economic growth on the mainland. In a statement yesterday, chairman Hang Yongyi said China's Ministry of Metallurgical Industries estimated that the consumption of steel products in the country would reach up to 100 million tonnes this year. The forecast was about six million to eight million tonnes above that consumed last year. ''The country has planned 78 million tonnes of steel products. Demand still significantly exceeds supply in China,'' he said. ''The year 1993 is very significant to the group's business development with its production volume and profits reaching record highs,'' he said. During the year, Magang produced 2.39 million tonnes of pig iron and 2.12 million tonnes of crude steel. The production of steel products - Magang's principal products - increased 12 per cent to 1.98 million tonnes. Although the reforms on tax and foreign exchange systems had brought great changes in the policy environment of mainland enterprises, Mr Hang said they should not have a big impact on the company. The company completed a number of key developments last year. The main body of a 2,500 cu metre blast furnace was completed and the heating up started this week. Two contracts were signed to import a large H-section rolling mill, as a major part of the company's four million tonne output project.
