Is Steel Giant Baowu Steel contemplating relocation of its Blast Furnaces outside China?
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Amid the protectionist measures built up by various countries in the last one year and escalated trade war between US. And China, many Chinese steel companies are focusing on shifting their investment to Southeast Asia. As per the industry sources, one such firm that is considering relocation of its blast furnace is Baowu Iron & Steel. The steel giant is considering moving its steel facility to Cambodia and if this happens it will be the company's first overseas production.
As reported, Baowu Steel is studying the feasibility of shifting two blast furnaces with a total installed capacity of 3.1 MnT from remote Xinjiang to Cambodia. The equipment to be moved would come from Xinjiang Bayi Nanjiang Steel Baicheng Co Ltd, a Baowu subsidiary based in Aksu in far northwest China. The plant was shut in 2017 and is located at 4,000 kms from the Cambodian capital of Phnom Penh.
Industry experts' views
To this news in the market, industry experts reacted that it will be very difficult for Baowu to set up a steel mill in Cambodia due to lack of basic infrastructures such as railways, utilities, and unfair investment environment. Also, it is rare for Chinese mills to relocate actual steel-making equipment to other countries, apart from those who sneaked out banned small-scale induction furnaces after Beijing's crackdown on low-grade steel in 2017. Given the sheer scale of some of the equipment, blast furnaces can weigh thousands of tonnes and the most likely route will be by train to China's east coast, and then by ship to southern Cambodia which will be a long journey.
However, it seems that Baowu is hoping to cash in on a local construction boom. Cambodia, which imports all its steel needs, is rapidly urbanizing, building major infrastructure projects including ports, freeways, and residential and commercial properties. It posted GDP growth of 7.3% in 2018, making it the world's sixth fastest-growing economy, according to the IMF. Apart from Cambodia, Baowu Steel may also consider other options such as Pakistan or Chile.
China's other offshore investments
Baowu Steel is not the first Chinese company to move overseas, Tsingshan Group which is world's largest stainless steel manufacturer will produce nearly 30% of its total stainless steel capacity in Indonesia this year, while another 10 Chinese firms have set up joint steel ventures in Indonesia, HBIS Group, China's second largest steel manufacturer said it will buy Tata Steel's assets in Thailand and Singapore with a combined annual capacity of 3.7 MnT and is also building a steel plant in Philippines with a capacity of 8 MnT which will take around 3-5 years for completion.
China has shut more than 150 MnT of steel capacity in the past three years as part of a campaign to modernize its economy, but still accounts for half of the global output, with the capacity of 980 million tonnes a year. The country is making efforts to control its overcapacity in the steel industry by shifting plants to more lucrative Southeast Asian countries.
