Baosteel, one of China's largest steel producers, has secured a contract from Commercial Aircraft Corporation of China Ltd (CACC) to research and develop specialized steel plates for China's large aircraft program, a company official said.

"The contract is a breakthrough for Baosteel, which has never developed steel sheets for large aircraft," said Chen Ying, the company's board secretary.

Although the Shanghai-based company is not expected to profit from the contract for some time, it was widely seen as a positive development at a time when it, like most other Chinese steel mills, is troubled by dwindling demand and bloated inventories. The double-blow slashed Baosteel's profit for 2008 to 23 billion yuan, down 32 percent from 2007.

"The ongoing financial crisis is chasing away downstream consumers of the steel industry and the thinning order book made the last two months of 2008 particularly gnawing for Baosteel: Six blast furnaces went closed, and output was cut by 30 percent during the fourth quarter," said Jiang Qiu, analyst with Guotai Jun'an Securities.

Baosteel hasn't disclosed the size of its inventory, but "we expect it will take at least two months for the company to run down the stockpile", said Jiang.

Unsurprisingly, Baosteel has set its priority on looking for more users and signing long-term contracts.

On December 30, 2008, Baosteel signed a second 10-year agreement with Haier, China's home appliance bellwether, to provide the majority of Haier's steel.

The steel producer entered an agreement with China State Shipbuilding Corporation (CSSC) on January 5 to strengthen cooperation. CSSC is one of Baosteel's major customers, buying some 90 percent of ship plates produced by Baosteel.

Analysts said Baosteel also stands to benefit directly from the government economic stimulus package, especially the part that focuses on the auto and steel sectors. "The stimulating plan will boost Baosteel's overall demand because 50 percent or more of domestic steel products used by the auto industry comes from Baosteel," said Wang Jianhua, senior analyst of Mysteel, a leading industry consultancy.

Baosteel's A share price had tumbled from 9.34 yuan on July 9, 2008 to a lowest 4.32 yuan on November 4, before it moved up to 5.09 yuan per share yesterday.

(China Daily January 16, 2009)