Last Friday, 9 May 2008, the benchmark indexes on both the Shanghai and the Shenzhen stock exchanges fluctuated and closed lower, as 60% of the stocks listed on these two exchanges showed losses. Turnover on the two markets reached RMB 180 bln, over 20% higher than the previous trading day. The steel sector moved in the opposite direction and closed higher, strongly outperforming the market.

On 9 May 2008, the ferrous metal sector industrial index compiled by Shenyin Wanguo, a domestic financial institution, increased by 2.01%, topping all other sectors. Sub-sectors within the ferrous metal index presented various gains. The steel sub-sector increased by 2.13%, while the metal products sub-sector only gained 0.54%. In addition, due to the more highly-weighted steel sub-sector, the ferrous sector index was pushed up by 1.95%, accounting for 97% contribution to the increase of ferrous metal sector.

Common steel stocks presented lower gains in comparison with special steel stocks. By adopting weighted average method based on the floated A-share market value, common steel stock was up 2.13%, as special steel sector was up 2.29%. Five common steel stocks were up, Baoshan Iron & Steel Co. Ltd (600019) by 3.53%, Panzhihua New Steel & Vanadium Company Limited (000629) by 4.69%, Angang Steel Company Limited (000898) by 2.72%, Maanshan Iron & Steel Company Limited (600808) by 8.01% and Inner Mongolia Baotou Steel Union Co. Ltd (600010) by 4.10%.

Steel companies generally presented good 1Q 2008 reports, as Xining Special Steel Co. Ltd (600117) presented 142.22%, Wuhan Iron and Steel Company Limited (600005) presented 44.84% and Beijing Shougang Co. Ltd (000959) presented 40.36% YOY growth in net profit. Domestic steel plants have raised ex-mill steel price for their second quarter. Steel product price hike could offset the surging raw material cost pressure. Certain analysts estimate that the interim report of large steel makers could beat market expectations. Based on the 2007 Annual Reports, stocks of ferrous metal sector presented 19.85 times in P/E ratio, which is the lowest among 23 sectors complied by Shenyin Wanguo.

Source: China Securities Journal

Date: 12 May 2008

CN01/DM/BT/WH