Golden Dragon Precise Copper Tube Group Inc, China's top copper tube maker, plans to build a 120,000-ton plant in Mexico to get closer to the United States, its main overseas market.
Sources in the company based in Central China's Henan Province said it will spend $100 million on the tube plant located in Mexico's copper-rich Coahuila state, which borders the US.
The National Development and Reform Commission, China's top economic planner, yesterday said it has approved the project's first stage with a capacity of 60,000 tons.
The plant will kick off production around the end of this year, the sources said, adding the move, Golden Dragon's first overseas industrial investment, will help cut costs of its shipments to the US sharply.
Li Yusheng, an analyst with Antaike Information Development Co, a metal industry consultancy in Beijing, said: "The project in Mexico will also enable Golden Dragon to dodge the negative impact from China's possible tax rebate cuts on copper tube exports."
Mexico is a member of the North American Free Trade Agreement along with the US and Canada.
Li said China, the world's biggest copper tube producer, will slash tax rebates on copper tube exports "sooner or later" as part of its efforts to rein in overseas shipment of resource-intensive products and the fast-growing trade surplus.
On July 1, the country removed or cut export tax rebates on more than 2,800 products, such as steel, cement, fertilizer and garments.
From January to June, China's trade surplus soared by 84 percent year-on-year to $112.5 billion.
Golden Dragon exported $350 million of copper tubes last year, up from $160 million in 2005. Its output grew to 180,000 tons from 140,000 tons, with sales revenue doubling to 11 billion yuan.
The plant in Mexico is part of the company's drive to expand its production capacity to 400,000 tons within five years from the current 220,000 tons.
The group's chairman, Li Changjie, said earlier that it was also seeking mergers of domestic and foreign firms to boost capacity.
"Other Chinese copper tube companies should also speed up overseas investment as there is excessive production capacity at home," Antaike's Li said.
Domestic capacity in China amounted to nearly 2 million tons by the end of 2006, much higher than the real output of 1.1 million tons in the year, according to data from China Non-Ferrous Metal Industry Association.