Beijing: China’s two major steel producers, BaoSteel and the Handan Iron and Steel Group Co Ltd have signed a 50:50 joint venture to build a large iron and steel plant to face growing challenge from global steel giants like Arcelor Mittal in the booming domestic market.
The plant, to be located in Handan in north China’s Hebei Province will have a production capacity of 4.6 million tonnes. It will be completed in 2010 and is one of the few large iron and steel projects to be approved by the state since China began its macro-control policy on the iron and steel industry.
“The cooperation will further streamline the domestic steel industry in order to compete with the international steel giants,” President of BaoSteel, Xu Lejiang said.
The plant, with an estimated investment of 19.4 billion yuan (2.5 billion U.S. dollars), is designed to cover an area of 660 acres. The registered capital for the new plant is 1.2 billion yuan, according to a statement by Baosteel. It will mainly produce high added value products including steel pipes, wire and plates for motor vehicles and household electric appliances, Xinhua news agency reported.
This is the second trans-regional investment by BaoSteel, China’s biggest steelmaker, after its recent investment acquiring controlling stake in Xinjiang Bayi Iron & Steel Co.
The move is regarded by analysts as an important step for the Shanghai-based company as it expands in China through cross-region mergers and acquisitions.
Auto steel sheets can create high profits for steel
companies, though high-end products are currently produced by large-scale companies in China and overseas.
“Baosteel has enough capital and technological competency to develop the new products, which are high value-added,” Liu said, adding that the net profit of auto sheets is expected to be around 500 yuan per ton.
The Chinese government is encouraging steel companies to eliminate outdated steel production methods to save energy and prevent oversupply.
Baosteel, which aims to increase total capacity to 50 million tonnes from 22 million tonnes by the end of 2012, is expected to have a new acquisition this year.
“Baosteel is still in discussions with Baotou Steel & Iron for an acquisition,” an executive from Baosteel said recently. Arcelor Mittal had initially held talks with Baotou but failed to strike a deal as the former apparently sought controlling stake in the venture, a move not allowed by Beijing.
“Large-scale steel companies will continue to acquire small-scale companies in order to strengthen their competitive edge in the international market,” the official said.