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Longhai Steel, Inc. (LGHS) Well Positioned to Execute Expansion Strategy

Located in Hebei Province, where most of China’s steel is produced, Longhai Steel has captured a great deal of attention and considerable market presence for its ability to fulfill orders in rapid succession within a highly competitive price structure and at a better quality than other suppliers in the People’s Republic of China, or PRC.

Subsequent to a facility expansion, Longhai Steel increased its yearly production by 67 percent in the fourth quarter of 2011, going from 900,000 to 1.5 million metric tons of high quality steel wire, in diameters from 5.5 millimeters to 18 millimeters, with production taking place on technologically superior equipment.

This high-quality metal lends itself to being made into carbon structure steel, cold heading steel (cold pressing discrete configurations from a steel blank or slug), welding rod, and steel stranded wire as used in steel belted radial tires, suspension bridges, and engineered springs used in automotive or industrial-type machines. Longhai Steel also offers its products to third-party processors who turn out such useful things as nails, the wire mesh used in reinforced concrete, hardware cloth, and the linked mesh that makes up chain link fencing.

The company recently capitalized on its superb reputation for exceeding PRC quality standards in the 6.5mm to 10mm wire metric, so widely used in the construction industry, via an additional production facility in Xingtai. This ultra-modern, high-speed plant not only has increased capacity, but has a longer production line equipped with advanced heating and cooling systems that result in a more durable and reliable product. In addition, this new facility is geared to roll out the kind of higher margin, 5.5mm to 18mm steel wire needed for specialized products.

Thanks to increased production and higher quality processes, Longhai Steel looks to secure an increasing slice of the regional stranded steel wire marketplace as increasing demand – sparked by local infrastructure upgrades and improvements – spurs development of the tier 3-6 city construction initiative which offers a firm foundation for growth.

Longhai Steel’s production improvements and expanded capacity offer the company an opportunity to effect a consolidation strategy which, aligned with PRC policy initiatives, promises to bring together an industry which has grown up piecemeal. The consolidation, in turn, is an opportunity for Longhai Steel to vertically integrate its business in a fusion of strategic acquisitions that has (and will) prove valuable for LGHS shareholders.

These policies, which anticipate China’s emergence as a major player in the global steel marketplace (with an increase in steel production of four percent even as the rest of the world shows declines of 1.2 percent), are available to Longhai Steel through corporate practices which favor long-term customer relationships, superior quality, rapid turnaround, reliable delivery, and customer support – all driven by economies of scale and acquisition opportunities which will reduce obsolete production capacity, promote cost reduction strategies and increase energy efficiency in an industry which has been seriously fragmented by rapid buildout.

Even though China is experiencing some of the slowdown occupying Western construction markets, it continues to roll out infrastructure at a fever pace, driving a remarkable 45 percent of global steel production and 46 percent of global steel consumption in 2011. Hebei Province, the steel capital of China’s northeast, in 2011 accounted for 20 percent of total nationwide steel output.

An overview of market opportunities in China show the government instituting policies designed to divide 60 percent of domestic steel capacity among the top 10 producers by 2015, as opposed to a mere 44 percent in 2009.

This intense consolidation is one metric in those economies of scale that promises to leverage the inherent value of China’s huge stimulus package, which offers $586 billion to create significant steel demand via increased construction in housing, roads, highways, dams, irrigation projects, airports, and other infrastructure buildouts.

Longhai Steel’s new 200,000 square-meter location, which includes everything from production lines and warehousing to company office space, make it even easier for the company to provide rapid turnaround and delivery on orders across a wider product mix.

To learn more about the company, visit

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