Citic in talks with US car makers in effort to limit potential financial damage from planned punishing tariffs

Conglomerate’s ‘special’ steel product sales grow 34pc to 5.7m tonnes. Excluding asset revaluation gains of HK$5.4b on the year-earlier period and the impact of the yuan’s depreciation, group net interim profit grew 6pc

PUBLISHED : Wednesday, 29 August, 2018, 10:45pm
UPDATED : Wednesday, 29 August, 2018, 10:58pm

Citic Ltd, the listed flagship of China’s largest conglomerate and one of the world’s largest producers of aluminium vehicle wheels, is in talks with its main customers in the US to try to hammer out deals to mitigate the potential tariffs to be imposed as the Sino-US trade war rumbles on.

“The actual figures [involved] are unclear and still being ascertained,” vice-chairman Wang Jiong told reporters, after being quizzed about the level of tariffs those two products it exports to the US may be subject to.

“We have hired lawyers to explain the actual situation at a public hearing”, he added, and a consultation process is taking place in the US on the proposed levies.

Gladly for the firm, Wang said the US accounts for only a small portion of Citic’s such “special” steel exports.

Citic posted an interim 31 per cent year-on-year jump in profits from those special items to HK$1.6 billion (US$203.8 million) as product sales grew 34 per cent to 5.7 million tonnes. But overall first-half net profit actually fell 5 per cent.

The company’s Citic Dicastal unit – one of the world’s largest automobile aluminium wheel makers and suppliers in the accessory parts market – is more exposed to potential tariffs, as the US makes up a “substantial” portion of its sales, Wang said.

“We still need some policy clarification from the US government,” he said. “We are in talks with the US’ big three domestic carmakers as well as the US production units of European and Japanese makers on ways to split the potential cost burden and devise longer term strategies.

We are in talks with the US’ big three domestic carmakers as well as the US production units of European and Japanese makers on ways to split the potential cost burden and devise longer term strategies
Citic vice-chairman Wang Jiong, talking about the level of tariffs its key metals exports to the US might face

“Regardless of how the trade war develops, we believe the US market – especially its number one position in the auto [parts replacement] market – is hard to be replaced.”

Dicastal reported a 30 per cent first-half net profit jump to 597 million yuan, with aluminium wheel sales rising 10 per cent to 27 million. The company built a US plant two years ago to meet demand, and has been ramping up its utilisation rate.

Citic Ltd’s overall first-half net profit fell 5 to HK$30.7 billion, or 64 per cent of the HK$47.9 billion full-year average estimate of three analysts polled by Bloomberg.

But excluding asset revaluation gains of HK$5.4 billion in the year-earlier period and the impact from the yuan’s depreciation, net profit grew 6 per cent.

The board declared an interim dividend of 15 HK cents, 36 per cent more than 11 cents last year.

Chairman Chang Zhenming said the firm hoped to continue raising dividend payouts, partly to meet Beijing’s dividend guidelines for state-owned firms.

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Its biggest profit earner, the financial services division Citic Securities, saw net profit grow 5 per cent year-on-year to HK$24.3 billion when the effects of the yuan’s dropping value were excluded, thanks mainly to higher non-interest income at Citic Bank, which recorded a 7 per cent profit rise.

Net profit at its resources and energy operations was HK$1.28 billion, compared with a loss of HK$266 million a year ago at this time, partly helped by higher commodities prices.

But its troubled US$10 billion iron ore mining project in Western Australia state remained firmly in the red, almost 11 years after it signed an agreement to build it, albeit with a reduced loss.

It was ordered to pay US$113.3 million earlier this year in mining royalty payments to its local estranged business partner, a decision that will be heard by the Court of Appeal in December.

“All six production lines have been fully ramped up and we expect to achieve 19 million tonnes of premium quality iron ore output this year,” Chang added, “which will bring environmental benefits to steel mills.”