Baosteel's Zhanjiang base given NDRC stamp of approval

Recently, Baosteel's Zhanjiang project received official approval from China's National Development and Reform Committee (NDRC). This is the final seal of success for Baosteel's great strategy of setting up an additional manufacturing center in southern China. However, it was by no means an easy decision for the NDRC to approve Baosteel's Zhanjiang project with its planned annual steel output of 20 million tons - due to the Chinese state's current policy of restricting new steel projects. Baosteel's important status within China's steel industry is once again confirmed by the exception made for it in this case. After all, many new steel projects had been previously overruled by the government in order to limit surplus steel production. For the purpose of avoiding difficulties, the whole process of preparing and carrying through the project was kept in low tone. As the biggest shareholder, Baosteel signed cooperation contracts with another Guangdong-based investor, Shaogang Group, with a view to setting up a joint venture to formally start operating the project. The planned total investment is around RMB 140 billion, while for the first phase the investment will be RMB 70 billion reaching a capacity of 10 million tons a year. At the beginning, the Zhanjiang project was put forward by Shaogang with a planned annual output of three million tons. Baosteel was not the major investor initially. Due to the rapid development of the world steel market and Baosteel's expanding interests, the planned capacity was increased several times in order to meet the potential demand from the future market. Finally, the capacity was fixed at an annual 20 million tons and Baosteel took Shaogang's place as the major investor because the size of the project was beyond Shaogang's capability. In fact, the wisdom of such a change has been borne out by experience. Otherwise, the likelihood is that the project would probably have been cancelled by the authorities if its major investor had only been a regular local steelmaker such as Shaogang. Besides the Zhanjiang project but complementary to it, a new joint venture including Baosteel and Brazilian mining giant CVRD is to be established soon in Zhanjiang city. This new mill - with a registered capital of 2 billion RMB and aimed at the production of iron ore pellets – will be located near the above-mentioned Baosteel mill. According to current plans, some of the iron ore pellet products will be used in Baosteel's Zhanjiang steelmaking mill, while the remainder will be produced for other Chinese steel mills. So far, the construction of the Zhanjiang steelmaking base is still ongoing. According to Baosteel's strategy, the start-up of the southern manufacturing base is evidence that Baosteel has formally commenced to fulfill its ambition of taking on China's southern market. As Baosteel's major rival, Wuhan Steel's Fangcheng project - which is to be located in relative proximity to Baosteel's Zhanjiang project – has still not received NDRC approval. Even so, it is nevertheless believed that the Fangcheng project will probably get its official stamp of approval at some time in the future. And then, the southern market will become a battlefield between Baosteel and Wuhan Steel.