ZHENGZHOU - China Gerui Advanced Materials Group Ltd, a Chinese maker of high-precision, cold-rolled strip steel listed on the NASDAQ index, started work on Wednesday on production lines that will allow it to make 300,000 tons more of its chief product a year.
The company will spend $60 million to more than double the amount of the steel it can produce annually by the end of the year, said Lu Mingwang, the company chairman and chief executive officer.
High-precision, cold-rolled strip steel is used in food and industrial packaging, cell phones, construction, communication cables, and household decorations, among other things.
Gerui makes more of that type of steel than any other company in China and commands about 12.5 percent of the market for the product. Next in line among the roughly 200 competitors in the same business is Hebei Dachang Jinming Accurate Cold-rolling Steel Plate Co Ltd, which enjoys an 8.5-percent market share. Gerui now has the ability to produce 200,000 tons of cold-rolled, wide-strip steel a year. It can also churn out 50,000 tons of chromium plated cold-rolled steel a year, which it is also beefing up its ability to produce in large amounts.
Because the production lines used to make cold-rolled steel will begin operating in March, the company is expected to perform better in the second quarter of the year, Lu said.
The new chromium plating line can process 200,000 tons of cold-rolled steel a year and went into production in late March.
Together with the two cold-rolled, wide-strip steel production lines, which can churn out 150,000 tons of the material a year, the factory is expected to be able to churn out 500,000 tons of additional product by the end of this year. From the first quarter of 2010 to the first quarter of 2011, Gerui's revenue increased 1.4 percent to $62.7 million and its net profits reached $9.7 million, down 15.6 percent from the same period a year ago. "We achieved a strong increase in operating cash flow in the first quarter," Lu said. "But sales growth increased slightly and was constrained by limitations on production capacity.
"We will export 20 percent of the new product to Japan because of price advantages."
"Our goal in the next two years will be to develop high-end technology products and expand our market share, rather than to expand capacity," he said.
China uses about 10 million tons a year of high-precision, cold-rolled strip steel. Of that, domestic producers can only provide around 500,000 tons a year, which means more than 90 percent of the product must be imported from other countries, said Ye Congfa, an expert with the China Iron & Steel Research Institute Group.
The domestic high-precision, cold-rolled steel industry can't supply the demand because it lacks the equipment and expertise needed to make the product, he said.
One barrier to increasing the supply is the cost of getting into the business.
"Capital requirements also prevent newcomers or smaller players without sufficient funds from entering the market," he said.
