The Baoshan Iron and Steel Co. Ltd., China's largest steel producer, said its net profits climbed2.7 percent to 13.01 billion yuan (1.68 billion U.S. dollars) in 2006.

The earnings per share rose 2.78 percent to 0.74 yuan, according to the 2006 annual report of the Shanghai-listed unit of Shanghai Baosteel Group Corporation. It will distribute 6.13 billion yuan of dividends in cash, or 3.5 yuan per ten shares.

The report said the company reaped 157.79 billion yuan in sales last year, up 24.6 percent from a year earlier.

The growth in net profits is much smaller than the 35 percent in 2005when they jumped to 12.67 billion yuan from 9.4 billion yuan in 2004.

The company said in its annual report that price hikes in production materials, including iron ore, coal and alloys, triggered by the rapidly expanding industry had reduced its profit margins.

The iron ore price jumped 19 percent last year after it surged 71.5 percent in 2005, it said.

The company said it would take further measures to boost the added-value of its products and strengthen cooperation with strategic customers to expand its market share in China, the world largest steel maker and consumer.

Former president Ai Baojun has been elected to replace Xu Lejiang as chairman of the Baoshan Iron and Steel, and Fu Zhongzhe, a former deputy general manager, has been elected as its new general manager, the company said in a statement to the Shanghai Stock Exchange on Saturday.

Xu Lejiang replaced the retiring Xie Qihua, the "Iron Lady" of the iron and steel industry, as the new chairman of the board of directors of Baosteel Group, which is 78 percent state-owned, the group announced on Jan. 16.

Baoshan Iron and Steel plans to boost production of crude steel to 23.27 million tons in 2007 from 21.74 million tons last year.

In January, Baosteel Group acquired 69.61 percent of the stocks of smaller regional rival Xinjiang Bayi Iron and Steel in northwestern China amid efforts to boost production capacity and profit margins.

The group has planned to boost annual production capacity to 30million tons by 2010 and become one of the top three steel producers in the world.

The government has been encouraging domestic steel giants to acquire smaller and out-dated firms in a bid to consolidate the industry and reduce energy consumption and pollution.

China has more than 6,600 steel producers. The output of the four largest producers in China only accounts for 18.5 percent of the total. The figure is 75 percent in Japan and 61 percent in the United States.

China plans to establish two to three steel conglomerates with an annual production of exceeding 30 million tons each by 2010, according to the steel industry policy issued by the National Development and Reform Commission in 2005.

It also expects the top ten domestic steel companies to produce more than half of the country's total steel output by then.