Anshan Steel's Fujian deal may signal coastal move

Anshan Iron & Steel Group, China's fourth largest steel maker, has agreed to help restructure the steel industry in Fujian province, indicating that the firm may build a new mill in the southeastern province.

Anshan Steel and the Fujian provincial government signed a strategic cooperation agreement on Thursday, the Liaoning province-based steelmaker said.

Under the agreement, the two sides will deepen co-operation in steel industry consolidation, including eliminating obsolete capacity.

Media reports said Anshan Steel planned to build a 10 million ton plant in the southeastern province, at a total cost of 60 billion yuan.

Anshan Steel President Zhang Xiaogang said in 2008 that the company was studying a possible venture with Fujian Sangang (Group) Co, allowing it improved access to imported iron ore.

"There are rich port resources in Fujian and the local steel market still has huge potential," the company said.

Liu Jingyuan, a spokesman for Anshan Steel, declined to comment on whether the cooperation with Fujian was related to a new steel mill in the province.

"Fujian's steel production only accounts for half of its steel consumption, indicating a huge market potential for steel mills in the province," said Xu Xiangchun, a senior analyst at consulting firm Mysteel.

Such a move to Fujian would also be in line with government guidance on industry consolidation, which has seen large steel mills lead the way by moving from inland to coastal areas, he said.

But Anshan Steel may have to take bold steps to rein in its total production capacity and close outdated facilities before it can win regulatory approval to open new mills, he said.

The restructured steel industry will be focused on China's coast - with Anshan Steel in Liaoning province, Shougang in Caofeidian in Hebei province, Baosteel in Zhanjiang, Guangdong province, and Wuhan Iron and Steel Group in Fangchenggang, the Guangxi Zhuang autonomous region.

Steel plants in coastal areas are expected to account for 20 percent of the nation's total capacity by 2011, the government said in an industry stimulus plan last February.

A report by KPMG illustrates that due to increasing environmental pressure, as well as the need to control logistical costs, China will gradually move its steel production capacity to coastal areas to give enterprises a greater competitive edge.

(China Daily 01/23/2010 page9)