China Precision Steel Profit Drops 61 Percent

HARTFORD, Conn. (AP) -- China Precision Steel Inc. said Tuesday its fourth-quarter profit plunged 61 percent as margins were squeezed by rising raw material prices, but said the steel industry is showing signs of improvement.

Net income for the quarter ended June 30 was $2.2 million, or 5 cents per share, down from $5.6 million, or 12 cents per share, a year earlier.

Revenue decreased 10 percent to $25.7 million from $28.6 million in the year-ago quarter.

The company said margins declined due to the higher cost of raw materials related to an inventory build-up in the first half of 2008 with high demand and steel prices. Then selling prices declined sharply amid the industry downturn, resulting in tighter margins, the company said. Its gross margin fell to 9 percent, from 19.2 percent, in the year-ago period.

Revenue for the quarter benefited from a $3.2 million subcontracting order that represented 14.8 percent of sales.

For the full year, the Shanghai-based company posted a loss of $408,338, or 1 cent per share, compared with a profit of $18.6 million, or 43 cents per share, in the same quarter in 2008.

Annual revenue fell 13 percent to $76.3 million, from $87.7 million.

"We are extremely pleased with the rebound in our business during the fourth quarter of fiscal year 2009 as the Chinese steel industry recovers from its lowest level since the global economic crisis began," said Wo Hing Li, chairman and CEO.

The business has not recovered to what it was in fiscal 2008 and uncertainties still plague the steel industry, he said. But demand for precision steel products has improved significantly over the 2009 fiscal third quarter, he said.

In addition, inventory destocking continues, Li said.

China Precision Steel's carbon business also is benefiting from stimulus policies for automobiles by the Chinese government, which has boosted demand for cars and construction vehicles, he said.

Shares fell 13 cents, or 4.2 percent, to $2.71 in morning trading.

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