15
Sep
BEIJING—China’s second-biggest steel producer, Hebei Iron & Steel Group Co., plans to build a steel mill in South Africa, a move that underscores how policy pressures are reshaping the world’s largest steel industry.
While China has for years sought to acquire more raw mining assets abroad, investments in steel plants overseas are rarer and may now signal a shift as environmental costs pressure steelmakers at home.
State-owned Hebei said it has signed a deal to take a 51% stake in a venture with the Industrial Development Corp. of South Africa and the China-Africa Development Fund to build what would be the country’s biggest overseas steel mill. The plant will produce five million metric tons mostly of construction steel when completed in 2019, the Chinese steelmaker said.
The company plans to start construction next year with first-phase production to begin in 2017. Hebei, which already owns iron-ore and copper mining assets in South Africa, didn’t disclose financial details of the deal.
China is home to 43% of the world’s steel production, a legacy of sorts of Mao Zedong’s drive in the 1960s to modernize the country’s economy by encouraging steel smelters in every backyard.
As a wave of stimulus-led loans fueled real-estate development and infrastructure construction in the last six years, China has become awash in steel. Policy makers now complain that there is too much steel made in China, which they say depresses prices and contributes to pervasive pollution.
The government’s stance has pushed steelmakers to consolidate, forcing state-owned giants to depart city limits for less populated areas while also complying with tougher rules to clean up their furnaces.
Hebei Iron & Steel itself came under pressure from Beijing early this year for contributing to excessive industrial capacity and environmental pollution.
Locating steel plants overseas would conform with government hopes that state-owned companies will venture more aggressively abroad, which includes Chinese moves in recent years to cultivate a strategic relationship with African nations.
“There’s no guarantee that the cost of building steel plants in Africa will be lower than building them in China because of [potentially] a lack of infrastructure and raw material cost,” said Huachuang Securities steel analyst Li Bin, “but it makes sense from cutting oversupply, a strategic point of view and in terms of cooperation with Africa,”
China’s steel ventures abroad haven’t been easy. In 2012, Wuhan Iron & Steel Group Co. halted a $5 billion effort to build a steel plant in Brazil because building rail infrastructure for the site would have made the project prohibitively expensive.
In 2010, Anshan Iron & Steel Group Co. almost backed out of a joint effort to build five mills in Mississippi after the project came under fire from U.S. congressional leaders for potentially threatening national security and jobs. The investment eventually went ahead, but remains controlled by the project’s U.S. partners.
Hebei’s move into South Africa comes at a time when some Chinese policy groups are pushing to loosen China’s restrictions on foreign investment in the steel sector, in part to head off trade tensions that surface every time Chinese steel exports start to rise.
“We have to increase our steel companies’ openness to globalization,” Zhang Changfu, secretary-general of the state-backed China Iron and Steel Association, said. “Foreign investment isn’t allowed. This has to change. If you don’t let people in, how do you go out?”
Source: http://online.wsj.com/