China Special Steel Holdings, which will raise up to HK$333 million from an initial public offering in Hong Kong this month, said it plans to expand production capacity through mergers and acquisitions in the medium term.

The expansion plan aims to fully capture the opportunities arising from the fast-growing special steel market in China, said chairman Dong Shutong without disclosing specific targets.

According to the China Special Steel Association, the world's average special steel output accounted for about 12 percent to 15 percent of the total steel output in 2003, and the ratio in China was only 8.1 percent.

This percentage is much lower than those of major special steel-producing countries such as Sweden, Germany and Japan.

CSSA expects the special steel output in China will continue to grow over the next five years.

Dong said the company will also actively develop new types of special steel products and further lower its costs and increase profit levels.

Founded in 1993, the company is one of the top five special-steel makers in China. It produces bearing and spring steel used in machinery and automobiles.

Net profit doubled to 128 million yuan (HK$120.6 million) in 2004 from 63 million yuan a year ago. As a result of robust growth of the machinery and automobile industries on the mainland, the demand for special steel is expected to surge, the company said.

``Unlike generic steel, which is generally used in the construction sector, special steel is mainly used for producing pressure, temperature, and wear resistant products for a variety sectors,'' Dong said.

The Henan-based privately owned steelmaker will offer a total of 180 million new shares at an offer price within the range of HK$1.48 to HK$1.85 per share initially, valuing it at about 5.8 to 7.3 times 2004 earnings, subject to the over-allotment option of 27 million sale shares.

Of the total shares, 162 million will be offered to institutional and professional investors, and 18 million will be offered to retail investors.

Its public offering will start today and end Thursday, and the shares will begin trading May 19. staff.reporter@singtaonewscorp.com