The Chinese steel giant Baosteel currently has a number of important investment projects in hand, in which it is directing its focus more to the end markets, including the auto parts industry. The company is close to signing agreements for two important investment projects: one is to buy Shanghai Automobile Wheel Corporation from the Shanghai Automotive Industry Corporation Group, while the other is to co-invest in and become the biggest shareholder of Nanjing Tooling Co., Ltd which is owned by Yuejin Motor Group.
These two corporations respectively manufacture wheel and auto part moulds. Their major clients include Shanghai Automotive Industry Corporation Group, Yuejin Motor Group and many other local automobile corporations. The total annual consumption of steel of the two corporations in question is expected to reach nearly 100,000 tons in the near future. These projects will further boost Baosteel's R&D as regards steel used in wheels, tooling and molding.
Although the steel demand involved is not very big, this will be the first time for Baosteel to fully take over an auto parts corporation after two previous co-investment projects with Japanese and Canadian auto parts companies in recent years. Undoubtedly, this latest move shows Baosteel's resolve to enter the downstream side of the steel industry.
It would seem that Baosteel has come to realize that it is necessary for a steelmaker to deliver the processed steel products to the doors of the end-users rather than just wait for customers to come and pick up products which have not gone through slitting and cutting processes. So far, Baosteel has already established nearly 20 steel processing centers around China. Baosteel's move towards the purchase of the above-mentioned downstream corporations is just a further step towards ensuring its leadership of the local market.
At the same time, Baosteel is continuing its overseas investments, in particular focusing on the upstream side of the steel industry in order to ensure iron ore supplies for the future. On May 23, Baosteel, Wuhan Steel, An Steel and Shougang Steel officially signed an agreement to invest in a new corporation aimed at developing and investing in overseas iron ore resources. This is the first time for local steelmakers to work together towards the joint development of overseas iron ore.
Furthermore, Baosteel's targeted Indian ferrochrome joint venture is currently being pushed forward in an active manner. Previously, it had been reported that the planned joint venture would located in Orissa - a place with rich iron ore resources - and that Baosteel would be likely to own 35 percent in the new unit while Visa Steel would own the remaining 65 percent. According to the latest reports, some of Baosteel's rivals from other countries have also expressed a willingness to cooperate with Visa Steel, and this has led to a delay in the negotiations between Baosteel and Visa Steel.
Due to the rich local ore resources and the new market in question, Baosteel has strong motives to push cooperation forward. Although the details are still unknown, Baosteel has offered Visa Steel favorable terms aimed at beating off potential competitors. The latest indications are that Baosteel is likely to sign an agreement with Visa Steel eventually, but that the share ratio will not be as was initially reported.