Longhai Steel, Inc.‏ (ACTN) is “One to Watch”

Headquartered in Xingtai City, Hebei Province, China, Longhai Steel, Inc.‏ is a manufacturer of steel wire products in eastern China. The Company produces steel wire ranging from 6.5 mm to 10 mm in diameter on two wire production lines. These lines have a combined annual capacity of approximately 0.9 million metric tons annually. Longhai Steel sells their products to a number of distributors who transport the wire to nearby wire processing facilities.

The Company’s wire undergoes further processing by third party wire refiners into an array of products. These include nails, screws, and wire mesh for use in reinforced concrete and fencing. Demand for Longhai’s steel wire is driven primarily by spending in the construction and infrastructure industries. The Company manufactures their products on an on-demand basis. They typically collect payment in advance. During the year ended December 31, 2010, Longhai Steel’s top five distributors accounted for approximately 35 percent of the Company’s revenues.

Longhai Steel’s production facilities are located at a 107,000 square meter property in Xingtai, Hebei Province. Their production facilities include a steel rolling mill; the unique feature of the mill is that two rolling lines are arranged in a “Y”-layout (two wire drawing lines share one furnace, one coarse and intermediate rolling mill, and other supporting equipment). This particular design facilitates cost savings and higher output at higher quality for the Company.

All of the Company’s sales are generated in China. In fact, 80 percent go to customers in Hebei. Longhai’s 2010 sales were $480.0 million. Net income was $12.0 million, total assets were $88.8 million at year-end, and employees totaled 505 people.

Longhai Steel, in October of 2010, signed a five-year operating lease for a newly constructed wire plant adjacent to their current plant. The new factory, with a capacity of 600,000 metric tons, will increase yearly production capacity by 67 percent to 1.5 million metric tons. The new wire plant will produce a higher-grade wire than the Company’s current products. It will also be capable of producing wire made from carbon steel, cold heading steel, and welding rod steel in diameters from 5.5 to 18 millimeters. Applications for these will be steel wire rope, steel strand, steel belted radial tires, and steel welding rod.

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