FEATURE: China’s Baowu mulls overseas manufacturing site
The initiative was a crucial discussion topic when the company held an internal meeting on February 18-19 summarizing the progress achieved so far and potential opportunities in the future, according to the post.
“Trade protectionism from the developed economy will be existing long, and we will have no way-out by solely relying on the traditional trading practices, only via internationalization, can we break the trade barrier,” Chen Derong, chairman of Baowu, was quoted saying at the meeting.
“China’s steel industry is already into a long cycle of de-capacity, and the competition will be fiercely heated, which makes it hard for us to achieve better returns even with our efforts in optimizing our domestic structure,” he explained.
Baowu, the 70 million tonnes/year steel giant headquartered in Shanghai, has been lagging behind in internationalization, Chen admitted, as Baowu has been heavily focusing on resources and trading aspects though the company started the efforts early.
In the coming years, Baowu should be shifting its core steel business towards the “exports & overseas production” module from the present “export” practice, and overall business scope in the overseas market should be extending towards “steel-oriented multi-layer structure” from the present “steel-oriented only” operations, according to Hu Wangming, general manager of the Baowu Group.
Internationalization has been a common goal among the Chinese steel producers, Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute, mentioned in an earlier market report.
“China’s steel production has made up over half of the global production, but there are few steel enterprises operating internationally, so we need to accelerate the pace in the aspect to stay competitive or even lead the global steel industry,” he said.
Whereabouts of Baowu’s overseas manufacturing site?
Baowu did not disclose any possible locations under its consideration for the future overseas manufacturing site, which aroused the great interest among the Chinese steel market to mull over a few possible locations.
Some market watchers mentioned Southeast Asia as a possible choice for Baowu, as many other Chinese steel producers have been building plants there.
“Steel products can be sold easily when they are churned out in these fast developing countries,” a Shanghai-based source said on February 22, adding that comparatively low labour costs in these regions is definitely one of the advantages.
Many countries in Southeast Asia such as Malaysia, Myanmar, Thailand, Indonesia and Vietnam are along China’s Belt & Road Initiative route, which will be welcoming investments to Chinese steel producers including Baowu, some others added.
Others, however, suspected the feasibility, reasoning, “the infrastructures in these developing economies are backward, which may not meet Baowu’s requirements,” a second Shanghai-based source that is close to Baowu said.
Besides, Baowu’s mainstream products such as galvanized steel, colour-coated sheet, electrical steel and auto sheet are more value-added, which may not find markets in Southeast Asia,” he said.
Baosteel’s international footprints so far
Mysteel Global’s study shows that in October 1993, Baosteel then before it was merged with Wuhan Iron & Steel into Baowu Group in 2016 opened Baosteel Europe GmbH in Hamburg, Germany, the first-ever steel trading presence by Chinese steel mills in Europe, taking care of Baosteel’s steel imports and exports in Europe, Africa and Middle East.
In 2006, Baosteel Resources (International) Co was incorporated with the duo headquarters in Shanghai and Hong Kong and offices Australia, Singapore, South Africa and Indonesia, focusing on mineral resources investment, trading and logistics.
In 2012, Baosteel registered Baosteel India Co in Mumbai, India, thus building its first ever wholly-owned steel processing and distribution centre abroad.
Baosteel or Baowu, however, has been extra cautious in investing in any mineral resource projects or any steel mill in the foreign countries though it had mulled the possibility of a billet mill with CSN in Brazil but scrapped the plan in 2008.
In comparison, among the top ten Chinese steel producers, Hebei Iron & Steel Group (HBIS), the second largest steel producer headquartered in Shijiazhuang, North China’s Hebei province, for example, will be quietly having its fifth production base outside China with its latest announcement to build an 8 million t/y integrated steel mill in the Philippines, as Mysteel reported.
Written by Olivia Zhang, zhangwd@mysteel.com
Edited by Hongmei Li, li.hongmei@mysteel.com
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