2011-05-03 10:02

Plant will have production capacity of 5 million tons of high-end steel

SHANGHAI - Baoshan Iron & Steel Co Ltd (Baosteel), a market leader in carbon steel plates, is heading southward. The Shanghai-based steelmaker will launch a strategic project in Zhanjiang, Guangdong province, this year.

Steel production at a Baosteel Group Corp facility in Shanghai. According to a report by the China Iron and Steel Association, the average profit margin for 77 steel makers was 2.91 percent during the first quarter of this year, much lower than the country's average industrial profit margin of 6.2 percent. [Photo/Agencies]

Baosteel has dominated the carbon steel-plate market in eastern China, and the next step is to copy its success in the south, according to He Wenbo, chairman of Baosteel, quoted by Securities Times during the company's annual shareholders' meeting on Friday.

Zhanjiang is a natural deep-water port and the nearest in China to receive iron ore imported from Australian mines. The expansion plan was discussed for quite a few years, but overcapacity in the steel industry and the global recession hampered the progress of Baosteel's project.

Baosteel set up a joint venture with Guangzhou Iron & Steel Co Ltd (Guangzhou Iron) and SGIS Songshan Co Ltd as early as 2008 for the Zhanjiang project.

According to the joint venture agreement, Guangzhou Iron planned to gradually reduce steel production from its outdated capacity and that was to be replaced by the future Zhanjiang project, said Zhang Tieshan, an analyst from steel information provider Mysteel.com.

The project is designed with an annual production capacity of 5 million tons of high-end steel and will expand to 10 million tons in the future.

The project is expected to involve investment of 70 billion yuan ($10.78 billion).

The National Development and Reform Commission gave approval to the project's preparation work in March 2008, but no further progress has been made since then.

On Monday, Baosteel reported net profit of 3.07 billion yuan in the first quarter, down 21.9 percent year-on-year. Baosteel attributed the shrinking profit to rising costs including raw materials and labor.

According to a report by the China Iron and Steel Association, the average manufacturing cost for 57 large and medium-sized steelmakers' surged 27.5 percent in the first quarter and the average profit margin for 77 steelmakers was 2.91 percent during the same period, much lower than the country's average industrial profit margin of 6.2 percent.

"Average profit has seen a substantial decline since 2007's 7.6 percent year-on-year, and the major reason for the reduced profit margin is the soaring price of iron ore," Hou Zhiyun, head of research at the Beijing Lange Steel Information Research Center told China Daily in an earlier interview.

Baosteel aims to produce 24 million tons of iron, 27.5 million tons of steel, and to achieve revenue of 210 billion yuan in 2011.