China’s Baowu Steel Eyes Overseas Market to set up a Manufacturing Unit

In an internal meeting held by the company on 18-19 February, the management of the company inferred that as the trade protectionism from the developed economy will be existing long, and that the company will have no-way-out by solely relying on the traditional trading practices, going international will only help the company to deal with the rising number of trade restrictions from various countries such as U.S., Europe, Canada, and Mexico.

Also, given the long cycle of de-capacity that will continue in China, competition will be very high which will make it difficult for the domestic steel players in the country to achieve better results just by targeting domestic market.

Baowu Steel which is headquartered in Shanghai, China has a production capacity of 70 MnT. The company’s management has added that as the organisation is lagging behind in internationalization, it 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.

Where will Baowu setup its overseas plant?

Although the company has not yet disclosed the destination where it will be setting up the plant, few industry experts are of the opinion that as a majority of Chinese steel makers are preferring setting up of their plants in Southeast Asian countries, Baowu Steel may also follow the suit.

Also, 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.

On the other hand, few experts are of the opinion that the infrastructure in these developing economies are backward, which may not meet Baowu’s requirements and hence it is unlikely that the company may prefer these countries to set up the plant. 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.

In terms of international footprint, Baowu Steel has its presence in the form of trading units, processing and distribution centres in Australia, Singapore, South Africa, Indonesia, and India.

Although China’s steel production has made up over half of the global production, there are only a few steel enterprises operating internationally.

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.

HBIS Group which is China’s second largest steel manufacturer has been slowly going international over the period of time and will be having its fifth production base outside China with its latest announcement to build an 8 MnT integrated steel mill in the Philippines.