China Gerui Advanced Materials Group Limited (CHOP)

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China Gerui Advanced Materials Group (CHOP)

Q4 2012 Earnings Call

March 26, 2013 09:00 AM ET


Kevin Theiss - IR

Mingwang Lu - CEO

Edward Meng - CFO


Echo He - Maxim Group

Dmitriy Shapiro - Global Hunter Securities



Good morning my name is Lindsey and I will be your conference operator today. (Operator Instructions). Thank you Kevin Theiss you may begin your conference.

Kevin Theiss

Thank you. Good morning ladies and gentlemen and good evening to those on those joining us from China, I’m Kevin Theiss from Grayling and I would like to welcome all of you to China Gerui Advanced Materials Group’s conference call to discuss the fourth quarter and year end and 2012 results. With me today, our China Gerui’s Chairman and Chief Executive Officer, Mingwang Lu and Chief Financial Officer Mr. Edward Meng.

Also (inaudible) will translate for Chairman with his opening remarks and help with the Q&A. I would like to remind our listeners in this call management’s prepared remarks contain forward-looking statements which are subject to risk and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today due to various risks including, but not limited to, the availability of funds and working capital to finance its activities; the actions and initiatives of current and potential competitors; the Company's abilities to win new customers, merchants and vendors for its products; the development and acceptance of new steel products, marketing and promotional activities; pricing policies of suppliers and competitors; competition in the steel market; and other risks detailed in the Company's filings with the Securities and Exchange Commission.

Accordingly, although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. In addition, any projections as to the Company's future performance represent management's estimates as of today March 26, 2013 and China Gerui assumes no obligation to update these projections in the future as market conditions change.

I'll now turn the call over to China Gerui's Chairman and CEO, Mr. Mingwang Lu for some brief openings remarks. Grayling (inaudible) will be translating for Mr. Lu. Mr. Lu, please begin.

[Foreign Translator]

Mingwang Lu

For China steel industry 2012 is probably the most difficult year since we entered in entered into this 21st century with the sluggish recovery of global economy in China’s economic growth slowdown, China’s steel industry has been under tremendous pressure from (inaudible) demand severe over capacity (inaudible) steel product prices, accessibly higher iron ore cost and operating loss across the industry.

Under this implementing in streak environment and as the leading precision in cold-rolled steel producer in China I’m very pleased that China Gerui was able to achieve our year-end revised 2012 revenue guidance and concluded 2012 with profitable operation. However due to fierce competition and favorable pricing environments were cold-rolled steel products price recovery of finished cold-rolled steel products fell behind and the load that of raw materials which resulted in our lower than expected earnings for the fourth quarter and for the whole year.

Nevertheless we’re encouraged to buy the relative stable volumes in the fourth quarter relative to volumes in the third quarter of 2012 and that our product mix continue to be optimized. Getting into 2013 we will focus on sustaining our industry leading position in terms of volume, revenue, and profitability.

As we also mentioned that the widely sales increased in global iron ore prices in the fourth quarter had helped push up the price at hot-rolled steel which is our raw material of operation but it is now translate into the same price increase of cold-rolled steel in China for the fourth quarter. We seek price hike of raw materials or efforts to selling price had been discounted due to customer’s price and sensitivity. It will take considerable patience and time for us to revert to the pricing from 2011 and before.

As the counter measure China Gerui elected to hold back the release of production capacity to manage market demands to the best extend we can so as to prevent damage to our perceived reputation as a high end premium price cold-rolled steel producer. Please do understand that with the current domestic market demand it's much more difficult to take back price discount offered to customers.

We believe we should continue with our current pricing strategy and in cold-rolled steel market recovers and customers give priority to call it even price (ph). The highlight we show all be aware is that while many of our non-state competitors separated heavy losses or simply went out of business we were able to maintain production across all production lines in the fourth quarter and deliver to our customer in a timely manner.

The utilization of our 500,000 tons of specialized cold-rolled steel was approximately 75% to 80% in the fourth quarter of 2012 which is in-line and slightly above the 75% utilization rate we achieved in third quarter. However, the utilization of our higher margin chromium production line was approximately 60% during the fourth quarter slightly below the 65% of the third quarter.

Despite challenging market conditions and pressures of our business model we believe that fundamentals of our operations are sound and a number of smaller competitors have undergone foreclosure and other smaller competitors lack the R&D to match our increasingly diverse product offerings.

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