On November 30th 2007, Baosteel and Shanghai Automobile Industry Corporation Group (SAIC) signed a strategic cooperation agreement involving the establishment of a new steel wheels manufacturing company, Shanghai Baosteel Wheels Co., Ltd.
According to the new cooperation agreement, almost all the steel wheels used for SAIC's major passenger vehicles will be supplied by the new wheels company which is wholly owned by Baosteel Group. The new company is in fact a former SAIC steel wheels plant. Since it was not close to SAIC's core business and lacked a high profit margin, it took the two groups just over one year to agree on the sale of the SAIC Group plant, while SAIC are to continue to purchase their wheels from it as before. For Baosteel, the move represents a good chance to enter the auto-parts industry at a reduced risk.
Currently, the yearly steel consumption of the new wheels company is just around 20,000 mt with an annual wheel output of 1.6 million pieces. Its capacity is restricted mainly by two factors: current wheel demand and limited workshop space. However, the latest indications are that this situation is changing.
Firstly, SAIC Group is ambitious to expand its size and output. On December 26 in Beijing, SAIC officially signed a strategic cooperation agreement with another local automobile giant Nanjing Automobile (Group) Corporation, announcing the merger of the two companies. SAIC spent RMB 2.095 billion on buying the latter's auto and core components businesses. SAIC is on its way to realize its dream of becoming the biggest automobile corporation in China. In this context, its steel wheel requirements will also increase, with Shanghai Baosteel Wheels Co. expected to meet the additional demand.
Second, Baosteel has chosen an area in Shanghai's Baoshan district (very close to its own facilities) to build the new wheel plant which will replace the current workshop. Construction is continuing at the present time. With the planned steel wheel capacity of the new plant at about six million pieces annually, in time it is expected to meet all of SAIC's wheel requirements.
Currently, the aluminum wheel is the main product competing with the steel wheel. The weight of an aluminum wheel is just about on third of that of a steel wheel of the same size and quality. Reduction of automobile weight is a goal common to automobile producers all over the world for reasons of fuel consumption. However, the price of a steel wheel ranges between just one third and one half of the price of an aluminum one - a reason why many manufacturers still use steel wheels.
On the basis of the current advanced DP600 and DP800 wheel steels, Baosteel is investing more in R&D for new steel products having higher tensile strengths and less weight. Given the continuous R&D and technological breakthroughs, it would seem that a promising future awaits Baosteel's steel wheel business.