Taiwanese expect profit decline in China

Taiwanese expect profit decline in China
25 July 2006

Taiwan’s cement makers with operations in mainland China will see their profits for the year drop 10 per cent from their projections made in the beginning of this year, because the cement prices in the mainland has dropped between five per cent and 10 per cent as the mainland would further enhance its policy to dampen the overheated economy.  
Because of the impact of flooding, the cement prices quoted in southern China area has dropped 10 per cent from RMB330 (US$41.25) per tonne in the beginning of this year.  
Focusing on southern China market, Taiwan Cement Corp. (TCC) estimated it would earn RMB100 million in the mainland as its Yingde plant in Guangdong Province began mass production in the second quarter of this year. TCC’s Yingde plant is capable of rolling out 3.5Mt of cement per year.  
Despite TCC’s optimistic projection in earnings, MasterLink Securities and Consulting Co. said TCC’s earnings in the mainland would be less than its projection because the mainland authority will launch a second round of credit-control policy in the second half of this year, which will adversely affect the growth of domestic-demand market there.  
Concentrating on the eastern China market, Chia Hsin Cement Corp. predicted the cement prices would decline five per cent up to 10 per cent if the second-round credit-control policy is enacted in the second half of this year. At present, the cement prices quoted in eastern China region is set at between RMB250 (US$31.25) and RMB320 (US$40) per tonne.  
To counter the unfavorable operating climate in China, Chia Hsin will increase exports to make more profits, as it only posted RMB10 million (US$1.25m) in mainland last year. The company estimated it would export over 2.5Mt of cements from the mainland this year, representing an annual increase of 200 per cent.  
Affected by the first-round credit-control policy, Asia Cement Corp. registered NT$70 million (US$8.75m) in earnings from operations in China last year. As it has raised mainland production capacity by 40 per cent in the first half of this year from last year’s level, the company predicted to see a 20 per cent annual growth in earnings from mainland operations this year. But an institutional investor estimated Asia Cement would see a 15 per cent year-on-year earnings growth in the mainland this year if the mainland authority implements more stringent credit-control policy in the second half.  
Despite the rather optimistic projections made by peer companies, Universal Cement Corp. said it can hardly make profits in the mainland until the end of next year as the influence of the mainland’s credit-control policy will continue till the end of next year. (Abstracted from Taiwan Economic News).
Published under Cement News