2Q09 vs 1Q09
In 2Q09 Sino Hua-An's revenue registered marginal drop of 2.9% from 1Q09 to 2Q09 mainly because of lower ASP of coke in 2Q09 of RMB 1,460 (1Q09: ASP coke=RMB 1,630). Running capacity in 2Q09 has improved to 91% compared with 1Q09 of 88%. On the other hand, our major by-products prices fared quite well (oilbased in nature and highly co-related with international crude oil price) because of improving international crude oil price. Crude benzene's ASP in 2Q09 up 55.9% (1Q09 ASP: RMB 2,300) and tar oil's ASP up 49.2% (1Q09 ASP: RMB 1,613) q-o-q respectively. Both crude benzene and tar oil contributed 8% to our revenue.

COGS improved 5.5% in 2Q09 from 1Q09 because the raw material price (i.e. coking coal) eased off 2.8% q-o-q. Average purchasing price of coking coal in 2Q09 was RMB 1,036 (1Q09: RMB 1,066). The reduction of COGS indicated that our cost saving is efficient. No finance cost incurred in 2Q09 as we are in net cash position of RM 25.0 million as at 30 June 2009 (since Oct 2007 no external bank borrowing). Gross profit & profit after tax in 2Q09 vs 1Q09 improved by 64.4% & 44.1% respectively. Shareholders' fund as at 30 June 2009 stood at RM 737.4 million & net asset per share was RM 0.66.

Industry update
In August 2009, Shandong Coking Association (consists of 55 members in which our wholly-owned subsidiary namely Linyi Yehua Coking Co Ltd is a member) signed agreement with 26 foreign coking coal suppliers in Qingdao city, China to purchase 5 million tons of coking coal from August 2009 till February 2010. It represents approximately 20% of coking coal requirement for the said period and more importantly its price is approximately RMB 150 cheaper per ton compared with domestic coking coal price. Therefore, 2H09 coking coal price is expected to be stable and that benefits coke producers in Shandong Province. According to the Shandong Coking Association, in the long term, the association may plan to buy 20% of foreign coking coal and maintain its percentage to ensure local coking coal prices remain reasonably competitive.

In China, currently major steel makers in China are running their capacity at more than 80%. According to National Bureau of Statistics of China, China produced 50.7 million tons (hit record high) of crude steel in July 2009 (or +12.9% from a year ago & in June 2009 China produced 49.4 million tons of crude steel). The figure was in line with industrial production output growth of 10.8% in July 2009 (from a year ago), retail sales rose 15.2% in July 2009 (from a year ago) & urban fixed asset investment for 1st 7 months of 2009 climbed 32.9% to RMB 9.59 trillion (y-o-y). Also, China's passenger car sales up +48% & +70% in June 2009 & July 2009 respectively y-o-y.

Stockpiles for steel have started to diminish partly resulting from heightened construction activities in the Northern & Southern region following the aggressive roll-out of projects proposed in RMB 4.0 trillion stimulus package. The stimulus package kicked-off positively especially on long steel which is related to construction industry. Shanghai billet price has gone up 25.4% in last three months, 6 May 2009 was RMB 3,030 per ton and in 13 August 2009 the price was RMB 3,800 per tons.

Moving forward
We are cautiously optimistic and hopeful to see the steel industry in China to better recover in 2H09 and also the 3Q09 growth is sustainable.