Huiyuan’s shares dropped by HK$3.49 per share, or 42.05%, to close at HK$4.80 apiece. In early trading, the company’s shares dropped 53% at one point to the day’s lowest level of $3.88. After having been suspended since March 11, 2009, the stock continued trading on March 19, 2009.

The recent price fall was in a sharp contrast to its performance in the past several months after the announcement of the Coca-Cola bid. Huiyuan’s shared price had doubled since September in 2008 after the beverage giant of America offered a deal of HK$ 12.2 in cash for each of Huiyuan’s listed shares in Hong Kong.

On March 19, 2009, the Ministry of Commerce vetoed Coca-Cola’s bid to buy Huiyuan, the largest juice maker in China, saying the acquisition could help to create a too strong player, which has sufficient resources and marketing prowess to smash its rivals.

Qin Gang, spokesman of the Foreign Ministry, said in the regular briefing on March 19, 2009 that the ruling is different from trade and investment protectionism. Qin said China will adhere to the policy of opening up the markets open and welcoming foreign investment as usual, reiterating that China opposes trade and investment protectionism.

Analysts foretold that Huiyuan’s shared price will linger on around the current level, yet, as an independent company, Huiyuan will do well in the long run.

OSk, a research firm based in Hong Kong, said in a report that without the offer of Coca-Cola, they expected Huiyuan’s price to plunge, downgrading Huiyuan to sell with a target price of HK$4.

Liu Ziyuan, an analyst from BOCOM International, predicted that Huiyuan shares will fall back to the level before the takeover program was announced. Wang Xiaodi, an analyst from Merchant Securities, said that in the short term, Huiyuan has lost the good chance of obtaining the advanced management technique and marketing expertise from foreign investors.

But according to Liu, the failure of Coca-Cola’s bid would not affect much on the Huiyuan’s current business. Liu said that the juice market has not changed since the takeover program was announced in 2008, and that no rival in the domestic market could ever put Huiyuan’s place in danger at present.

With more than 45% of the pure juice market in China, Huiyuan is the country’s largest juice beverage maker, controlling over 10% of Chinese fruit and vegetable juice market that grew 15% in 2008 to $2 billion.

Liu said at present it is more important to see if Huiyuan’s management team has an alternative plan now that the deal has failed.

Zhu Xinlin, who established Huiyuan in Guangdong province in 1992, now holds more than 30% of its shares listed in Hong Kong. After the takeover plan was revealed in 2008, Zhu said that he would appreciate the Chinese government even if the deal is denied. He was quoted as saying, “If the deal is denied, I would assume the government has its own concerns.”

Huiyuan said on March 19, 2009 that it respects the decision made by the Ministry of Commerce and the company’s business will go on as usual.

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Zhang Tieshan, the analyst of the website said that the increase of steel prices was attributed to the rebounding demand. The steel products that have increased prices include about 30 sorts.

Zhang said almost all the steel product prices have increased. For example, on Oct 17, 2008, the average price of deformed steel was 3,550 yuan per ton, however, this week the price rose 12.4 percent to 3,990yuan. Meanwhile, prices of hot-rolled steel increased from 3,770 yuan to 4,170 yuan, up 10.6 percent.

Since steel factories decreased output last year, steel supply became less, which was one reason of the price surge. Baosteel, a steel factory, has stopped its 6 blast furnances’ work for half a year since October.

Another analyst, zhu limin, who is from Shanghai Securities, said steel factories in China have utilized only a little more than their full capacity in the past months, only to balance the supply and the demand.

Zhu also said the 4-trillion yuan stimulus project emphasizing on elementary facilities such as railways and highways would make the steel industry recover. Now the project begins to work.

It is said by Zhu, an analyst from mysteel.com, although the total demand of steel is not known, a prediction of a 2 trillion Yuan used for mass construction is made by detailed projects estimation, which equals to a demand of more than 20 million tons of steel. A record demand of steel is possible due to the additional 100 billion Yuan of investment announced by the end of 2008.

The causes of the steel price rise according to Zhu, analyst from Shanghai Securities, are the rising shipping costs and increasing raw material prices such as coke and shredded.

However, analysts predicted a price drop in the near future when the annual iron ore price negotiations come to an end.

Zhu said that once negotiators reach to an agreement, steel prices will drop because the potential steel demand and excess credit will shrink in the global recession. It is possible that this year’s prices go back to 2007’s levels, which mean 40% to 50% less than that of last year. 

In fact, as an agreement on iron ore price reduction by 41 percent for 2009 between Russian steelmaker Magnitogorsk Iron and Steel Works (MMK) and Eurasian Natural Resources Corporation (ENRC) of Kazakhstan has been made in January, China has to follow a similar attitude in the ongoing iron ore negotiation.

It is said by Zhang that there is a demand of price cut in China, but the drop will not be as serious as MMK did. Due to the unpredictable conditions in export, the stimulus package of 4-trillion Yuan would not be a fix figure. Last year, 40 million tons of steel was exported from China, which almost equals to the same quantity the overall stimulus package.

According to Zhang that the price rise will stop when the current balance between supply and demand is changed as the Chinese steel mills enhance their output.

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Given the economic slowdown and turmoil in financial market, the Bank of Japan left interest rates unchanged at 0.3 percent. This shows there is a long way for recovery. Global stock reaching a record low in five years causes fears more companies might not survive amid this economic turbulence. But there are hopes for government could do more help to make market recover.

According to a person who is familiar with the situation, Citigroup is considering several ways to save its market, including selling part of the company or merging with another firm. Such woes of a deepening recession made most Asia stocks turn sharply down last Friday. However, with the help by a rise in US stock futures, shares rebounded later. There is also hope for China does more support for the market.

A possible rescue plan of the Big Three US carmakers makes things more uncertain. A business survival plan was required by democratic congressional leaders to executives of General Motors, Ford Motor and Chrysler LLC, with giving loans up to $25 billion as exchange. Lawmakers said the plan could be considered the week of Dec 8.

What is worse, a US government report showed the number of Americans who receive jobless benefits surged to over 4 million. This is the highest in a quarter of a century. Conrad DeQuadros, senior economist at RDQ Economics in New York, said it was not just a deep recession but a long one.

Asia is no better than the US. With the economy dropped in the third quarter bigger than expected, Singapore confirmed it was in recession last Friday, and the economy could shrink further next year.

The South Korean won hit a nearly 11-year low Last Friday, down almost 40 percent this year. It is forecasted by UBS the economy could shrink 3 percent next year and its household spending dropped to a record low in the third quarter, showed by government data.

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As a recent Economist article points out, the low prices of Chinese products, thanks to its low manufacturing costs, have contributed to stabilizing prices across the globe. “China helped to hold down inflation in developed economies not because its prices were falling, but because its goods were much cheaper,” the article said.

Because of China’s higher demand for oil and other commodities, some critics insist on pointing the fingers at China to put the blame on a country that is facing the daunting task of development, said Hua Min, director of Fudan University’s Institute of World Economy.

Indeed, China’s oil imports increased significantly in 2007, up more than 14 percent year-on-year compared with the 10 percent in the preceding year, when the Fed was complaining about deflation, not inflation.

The International Energy Agency published a report in 2005 saying the increase in demand from China and India can be well compensated by Russia’s increase in its oil exports, thus keeping the overall supply-demand situation unchanged.

The decision of the Organization of Petroleum Exporting Countries (OPEC) late last year not to raise production was also based on its reading that supply matches demand, which indicates that the accusation that China’s demand has pushed up prices does not hold water, said Zuo Xiaolei, chief economist with China Galaxy Securities.

The organization has balanced the supply and demand in the oil market, dismissing the rationale for increasing output.

Pushing up oil and other commodities prices should be imputed to the lax US monetary policy started some years ago and the ensuing loose liquidity across the world, analysts said.

Since 2001, the US government has tried to save an economy battered by the bursting of the “new economy” bubble through continuous interest rate cuts. The interest rate, as a result, came down from 7.5 percent to as low as 1 percent. This led to a steep depreciation of the dollar against all major currencies, said Zuo. As oil price is denominated in dollar, prices rose. “In the dollar’s latest round of depreciation since last year, oil prices crossed the $100 a barrel line,” said Zuo.

The loose US monetary policy also caused the credit crisis, which is fundamentally the result of loose money, and the crisis has in turn exacerbated the dollar’s depreciation, said Hua. As it pushed up the relative price of oil, the falling dollar has also prompted global investors to shift to commodities instead of the US currency in their investment portfolio, said Hua, indirectly pushing up prices of oil and other commodities.

As the sub-prime crisis continues to spread, part of the international capital has flown into the commodities futures market, increasing their prices as a result of speculation, said Zuo.

In January 2000, speculators controlled 37 percent of contracts to buy West Texas Intermediate crude oil on the New York Mercantile Exchange. By this April, however, they controlled 71 percent of the contracts, according to data provided to the US House Energy and Commerce Committee by the Commodity Futures Trading Commission.

Are you interested in the business opportunities in China?

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BPOVIA is the leading virtual assistant and Knowledge process outsourcing (KPO) service provider in China. BPOVIA is the only virtual assistant company ever been nominated for the prestigious “Red Herring 100 Asia” Awards 2008. Combines international perspective with local know-how, BPOVIA can provide our clients China business development service and help our clients doing successful business in China.

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