On February 24, an insider from major Chinese steelmaker Hebei Iron and Steel Group indicated that the company will withdraw from the project for the construction of a steel production base in Caofeidian, Hebei - a project on which it has been cooperating with Chinese steel producer Shougang Group. The insider indicated that Hebei Steel Group's decision was based on the market situation, as well as caused by disagreements on strategic targets and profit distribution.
Six years ago, China's National Development and Reform Commission (NDRC) approved the relocation of Shougang Group to the Caofeidian district in the city of Tangshan in Hebei Province, and approved its establishment of a joint venture with Tangshan Steel, a subsidiary of Hebei Steel Group. Shougang Group holds a 51 percent stake in the new joint venture in Caofeidian, while Tangshan Steel holds the remaining 49 percent.
The Hebei Steel Group insider indicated that the investment for the new steel production base was very large, at nearly RMB 50 billion, and that asset depreciation exerted great pressure on the company. Influenced by weak demand in the market, the Caofeidian joint venture may suffer large losses, while main management positions and operations were controlled by Shougang Group. As a result, Hebei Steel Group has decided to withdraw from the joint venture, the insider stated.