Chinese manufacturers online

China Oriental Group Company Limited is the Bermuda-incorporated holding company for Heibei Jinxi Iron and Steel Company Limited, one of the China’s largest suppliers of steel billets. Based in northeastern Hebei Province, the Group’s plant had – as of end-2003 – an annual production capacity of more than 3 million tonnes of billets and strips, which are supplied to downstream steel manufacturers.

Founded in 1999, the Group underwent a substantial transformation between 2001 and 2003 with a management buyout and a capital injection by a foreign strategic shareholder. This evolution from a state-owned enterprise to a private company greatly enhanced our operational efficiency and competitiveness.

Within three years, we developed into one of China’s 500 fastest growing enterprises in terms of profit and revenue. Our competitive edge has been strengthened by our strategic location, our efficiency and low cost structure, our reliable access to raw materials, our broad customer base, and our highly experienced management team.

Strategically Located in China’s Largest Iron Ore Mining Area

The Group’s location in Hebei Province, the largest and richest iron ore-producing region of China, gives us strong strategic and logistical advantages. Our plant has easy and reliable access to raw materials and is also close to railways and ports, which helps keep transportation and customer servicing costs down.

Qianxi County, where all our production facilities are based, is located in the Jing-Tin-Tang area east of Beijing, noted for its easy access to deep-sea port facilities on China’s northeastern coast, including Tianjin New Port, Jingtang Port and Qinhuangdao Port, and to railroads such as the Datong-Qinhuangdo and Beijing-Shenyang railways. We are also close to China’s major industrial region where most of our key customers are located, allowing us to guarantee efficient and timely deliveries.

One of China’s Most Efficient Steel Producers

The Group is among the most efficient and lowest cost steel manufacturers in China. We have maintained a blast furnace utilization rate of 95% over the past three years, ensuring very low unit costs in a high fixed-cost industry. All of our generators are designed to use the recycled gases created during the steel-making process to generate electricity, thereby reducing wastage and utilities costs. Our average conversion costs are declining steadily and our cost of production is far below the average of the 17 other major steel producers in China.

Besides our strategic location, which helps keep transportation costs down, we also benefit from the relatively low average compensation levels in Hebei Province – which allow us to offer competitive wages to our employees – and from the tax advantages we enjoy as a foreign-invested enterprise.

Expanding Capacity To Meet Market Demand

Our state-of-the-art production facilities – at a single site in Quanxi County – consist of a sintering plant, a pelletising plant, an iron smelting plant, a steel making plant and a steel rolling plant. Each plant represents a part of the process required to convert iron ore and other raw materials into the steel billets and strips that we sell to our customers. Those billets and strips are further processed by downstream steel manufacturers into products such as angles, rebars, wire rods and pipes, which are largely used in the construction and machine-making industries.

Most of our facilities are less than three years old and are continually being upgraded to meet sustained demand for steel and to ensure the right product mix for the market. A steel rolling line to produce mid-width strips is expected to begin operating in the second quarter of 2004 and there are also plans to build a rolling line to manufacture H-section steel. This will add higher-margin products and help diversify our output.

Secure Raw Material Supplies and A Broad Customer Base

To ensure secure supplies of raw materials, we own a 35 per cent share of one of our largest providers, Zhongxing Iron Mine, and we have long-term contracts with a number of other mines in Qianxi County, which supply us with around 1.8 million tonnes of iron ore a year. To maintain flexibility and reduce risk in our raw material procurement, we are careful not to be overly dependent on any particular mine – none of our suppliers account for more than 9 per cent of our total iron ore purchases.

As one of the largest suppliers of billets in China, we are a major player in the booming steel industry. We sell virtually all our products to domestic customers, mainly in northern China, and we have increased our production capacity four-fold in three years to cope with the demand. We are not reliant on any specific customer; our five largest customers account for less than 30 per cent of our turnover and no single customer accounts for more than 7 per cent.

High-level training programs and stringent environmental controls

Our highly trained workforce is a key factor behind our strong productivity. Almost 30% of our approximately 4,500 employees are engineers and technicians who have completed technical school or higher education, and we conduct continuing training programs to maintain a high level of expertise. We strictly follow government regulations on workplace safety and health and provide safety-related education and personal injury insurance coverage to our employees.

The Group is also very conscious of the need to protect the environment. We are committed to complying with all national and local environmental regulations, including limits on waste discharge, land repair and emissions disposal.

An Experienced and Highly Motivated Management Team

China Oriental Group’s management team is one of our key assets. Not only are they among the most experienced managers in the industry, they also hold – along with 1,800 of our employees – a controlling stake in the Group, giving them even greater incentive to achieve better results. Our executive directors have an average of more than 10 years experience in the iron and steel industry while the senior managers have an average of 14 years. Together they have successfully transformed a state-owned steel company into an efficient and profitable private enterprise. Now they are committed to ensuring the Group’s continued growth.

Han Jingyuan, chairman and chief executive officer, is a graduate of the People’s University and has around 20 years experience in the steel industry. He joined Tangshan Jinxi Group, one of the forerunners of China Oriental Group, in 1992 after serving as a director of the Jinxi Iron Factory. In December 2003, Mr. Han was chosen as one of the “Top Ten Celebrities for China’s Reform Program in the New Century.”

Diana Chen, vice-chairman, has extensive managerial and capital markets experience, having worked as a fund manager and as general manager of Pioneer Metals Company, our foreign strategic shareholder. Ms. Chen graduated from New York University.

A Leading Enterprise in China’s Fast-Growing Steel Industry

China’s sustained, strong economic growth over the past 10 years has led to unprecedented levels of steel production and consumption. In 1993, the country became the world’s largest steel consumer, and four years later, the largest global producer of steel. However, there is significant room for further growth. On a per capita basis, China’s consumption remains below that of other, developed economies, while the fast-growing construction, machinery, automobile and electronic appliance sectors ensure that demand for steel continues to outstrip supply.

With almost all of our customers are in China, we are well positioned to fully benefit from the fast growth in the domestic economy and the continuing strong demand for steel from the country’s booming construction and machine-making industries. We are confident we will provide even greater value for our shareholders going forwards.