China approves Baosteel's $11 billion steel project in Guangdong

BEIJING Fri May 25, 2012 12:19am EDT

A stainless steel product line is seen at a factory of Baosteel Group Corp., China's biggest steel maker, in Shanghai July 6, 2010. REUTERS/Aly Song

A stainless steel product line is seen at a factory of Baosteel Group Corp., China's biggest steel maker, in Shanghai July 6, 2010.

Credit: Reuters/Aly Song

BEIJING (Reuters) - The Chinese government has given Baosteel Group the go-ahead to build a 10-million tonne per annum steel project at Zhanjiang port in southeastern Guangdong province, according to a notice issued on Friday.

The project, which also involves the construction of power plants and port facilities, will require a total investment of 69.68 billion yuan ($10.98 billion) and was approved by the National Development and Reform Commission on Thursday.

Baosteel, the parent of the Shanghai-listed Baoshan Iron & Steel (600019.SS) and China's third biggest mill by production capacity, has been awaiting formal approval for the project since preliminary construction got underway in 2008.

The government said on Wednesday that it would fast-track a number of major large-scale investment projects this year as part of its efforts to stimulate growth.

But China is trying to balance the need to reinvigorate its flagging economy with a desire to keep its bloated steel sector in check.

As part of the agreement signed by Baosteel, the local government will close 16.14 million mertic tons of backward crude steel capacity in the rest of Guangdong by the time the Zhanjiang project has been completed.

China has been encouraging large state-owned mills to shift operations further to the coast in order to slash logistics costs and improve the environment in urban areas. It aims to move 40 percent of total steel capacity to the coast by 2015.

But with total crude steel production capacity estimated at as high as 900 million tonnes, compared to last year's output of 683 million tonnes, the government has also been trying to force hundreds of smaller mills to close or consolidate.

Baosteel's chairman Xu Lejiang said earlier this month that the company would reduce capacity in its home city of Shanghai by 3 million tonnes within the decade, and was also "considering" shifting more of its operations to other parts of the country.

The company produced a total of 43.34 million metric tons of crude steel in 2011.

China has also approved a plan by the Wuhan Iron and Steel Group to build a new steel production base at the Fangchenggang port in the southwestern region of Guangxi, which will have an annual crude steel capacity of 9.2 million tonnes and require a total investment of 64 billion yuan.

As part of the agreement, as much as 10.7 million tonnes of crude steel capacity will be closed in Guangxi in order to make way for the new plant. ($1 = 6.3447 Chinese yuan)

(Reporting by David Stanway; editing by Miral Fahmy)

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