Baowu Steel Group to Build a Steel Site in Cambodia?

China Baowu Steel Group Co (Baowu), the country's top steel producer or the world's second-largest mill, has always worshipped its clear-headedness and caution in its overseas development strategy all along, and this remains the rule when it studies overseas steel investment opportunities now, as "risks in overseas investment are pretty high", a senior official from the conglomerate explained.

Has Cambodia been chosen for Baowu's first steel site?

Baowu disclosed back in February the plan to construct its own steel manufacturing site overseas, as Mysteel Global reported, but so far, the plan is still in the "studying stage", with no definite details such as location nailed down, according to the official, despite that recent Chinese media reports mentioned Cambodia as a possibility.

A Beijing-based steel analyst was not surprised at Baowu's taking it slow. "Baowu has always been rather insightful and taking a steady approach whenever overseas investment or engagement is involved."

There has been a market speculation that Baowu is considering relocating its Xinjiang Bayi Iron & Steel's Nanjiang plant from Northwest China's Xinjiang Uygur Autonomous Region to Cambodia, which both a Beijing-based industrial source close to Baowu and a Bayi Steel official confirmed.

"I do not think relocation is the right word for this, what I understands is that Baowu will cut down on the existing steel capacity in Xinjiang and optimize its steel structure, and build a new steel project in Cambodia," the Beijing source said, adding, "China is committed to cooperating with 'Belt & Road Initiative' countries on high-end steel products, it does not make sense to move used facilities to Cambodia."

The Baowu senior official, however, is not aware that Cambodia has been chosen.

"It (the greenfield mill) does not have to be located in Cambodia, and personally I do not think it is the best location either in terms of its economy or social stability," he said, comparing it with the other countries including the other ASEAN members along the BRI route.

Going abroad is a must to Baowu

Baowu, being China's No.1 steel mill with 90 million tonnes/year steel capacity and the most comprehensive steel structure, can prosper in China without exploring abroad, but the company has always been holding onto the strong belief in exploring overseas markets for sustainable development, the Beijing analyst pointed out.

Setting up a steel production base abroad in the end is a mission for Baowu, partly due to the fact it will enable Baowu to fulfil its obligation as "China's best state-owned steel producer" to contribute to Beijing's BRI initiative, he commented.

Besides, China, as the world's largest steel production and consumption country, has been facing ever-escalating trade friction and protectionism, which makes it more paramount for Chinese steel mills to establish manufacturing sites overseas to minimise the affection, the analyst added.

"Baowu, nevertheless, will act very prudently in deciding on where to build the steelworks and what to produce," he commented, especially when many blind and overzealous investment decisions by many Chinese mills in overseas iron ore projects in the past decade have led to either huge losses, delays or halfway abandonments.

Baowu, in comparison, has kept its clear-headedness and shelved a steel slab project with Vale in 2008 after the serious due diligence study, Mysteel understands.

Baowu (originally Baosteel Group) was the first steel mill in China to extend into Europe by incorporating its European trading company - Baosteel Europe GmbH in Hamburg, Germany in 1993, and the subsidiary has been responsible for Baowu's 10% steel exports every year despite that "it is making little money", the Beijing-based analyst noted.

Afterwards in 2001, Baosteel set up a joint venture with Brazil's Vale S.A and then another joint venture with Australia's Hamersley (now part of Rio Tinto) in 2002 to guarantee stable iron ore supply of iron ore for its steelmaking, he recalled.

"Baowu deems it necessary (to extend to overseas), as participating in international market will help the company to test the competitiveness of its products and services with the first-hand information," he explained.