Baosteel Group Corp’s overseas expansion plans will focus on raw materials until a “clear” picture emerges about global steel demand, the chairman of China’s largest steelmaker said.

Other Chinese steelmakers are also likely to hold back from
“large-scale” capacity expansion overseas in the next three to five
years as they focus on completing domestic mergers, Baosteel’s Xu
Lejiang said yesterday at a conference in Beijing.

“Currently the majority of Chinese steelmakers don’t have a very clear
strategy in overseas expansion,” Xu said. “I plan to just focus on
resources and won’t consider merging steel capacity or making new
investments in building plants overseas unless I have a clear idea of
how the market will grow.”

Global steel demand will fall 8.6 percent this year as the biggest
economic crisis since the Great Depression slashed purchases, the World
Steel Association said in October. China plans to create one or two
producers the size of global leader ArcelorMittal through mergers to
win better prices from customers and material suppliers.

When Chinese steelmakers seek to expand overseas, they will probably
focus on Brazil, Russia, India, the Middle East, Southeast Asia and
Africa, Xu said. State-owned Baosteel, based in Shanghai, is China’s
largest steelmaker.

Baosteel, which controls listed Baoshan Iron & Steel Co, in October
won regulatory approval from Australia to buy a 15 percent stake in
Aquila Resources Ltd for A$285 million ($265 million). Aquila has
announced plans to develop an iron ore project in Western Australia and
coal mines in Queensland.

Baosteel may ask a Chinese coal company to help with the development of
coal resources at Aquila Resources, Xu said yesterday. He didn’t name
potential partners.

Aquila Resources rose 1.5 percent to close at A$9.5 on the Australian
stock exchange. Baoshan Steel gained 3.6 percent in Shanghai trading.

Chinese companies are increasingly buying iron ore and coal assets
overseas in a bid to reduce their reliance on imports from companies
including BHP Billiton Ltd and Rio Tinto Group.

China may produce 570 million metric tons of steel this year, with net
exports of 1 million tons, Xu said. This compares with the 565 million
tons production forecast made by the China Iron & Steel Association
on Nov 19. The steel group had also predicted net exports of 1.2
million tons.

The government’s 4 trillion yuan ($586 billion) stimulus spending has
boosted economic growth and demand for construction steel, Xu said.
Steelmakers are now asking themselves whether demand for construction
steel would be “good” should fixed asset investment slow, he said.

Chinese steel prices have dropped 16 percent from a 10-month high on Aug 4 as mills compete to benefit from the stimulus.

Source: Bloomberg

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