Falling steel prices may hit Maanshan profits

MAANSHAN Iron and Steel, which announces its interim results tomorrow, faces an inquisition from investment analysts worried about the impact of falling steel prices and rising production costs on year-end net profits.

Analysts were spooked this week by rumours that a major brokerage had revised down by nearly 30 per cent its year-end net profit forecast for the company.

The message the company conveys tomorrow could decide whether major institutional managers decide to back the stock for the rest of the year or bail out.

Figures compiled by the Estimates Directory reveal wide differences in analysts' expectations. G. K. Goh has forecast the lowest figure with net profits of $1.07 billion, while South China Securities has plumbed for a massive $1.86 billion. Nick Moakes, an analyst at S. G. Warburg Securities, said: ''Falling steel prices in China mean that Maanshan will have trouble showing any profit growth in 1994. We have revised our forecasts down to reflect this.'' He argued huge quantities of cheap Russian steel which have been flooding into China had served to reduce steel prices nationwide.

Dora Hung, an analyst at Goldman Sachs, said Russian steel sells for about 2,800 yuan (HK$2,522) per tonne, compared to a prevailing market price of about 3,100 yuan. ''I would expect the Chinese Government to reintroduce import controls on Russian steel very soon,'' she said.

Mr Moakes estimated that wire rod prices, which make up a third of Maanshan's output, had fallen from US$356 (HK$2,748) per tonne to $310. He expected margins to contract and had recommended clients to reduce their holdings in Maanshan.