Stick to a strategy of expansion

By Ma Zhongpu (ChinaCCM.com chief analyst)

Shanghai. July 23. INTERFAX-CHINA - China's iron and steel industry is entering a period where costs are high and growth is low, with overcapacity and low market prices making it difficult for iron and steel enterprises to operate in China. For developing countries, however, demand for these materials is increasing and will continue to do so. China's large-sized iron and steel enterprises must therefore seize this opportunity and develop internationally, working to improve the level of cooperation with foreign businesses and speed up construction of the industry chain. Internationalized production and operations will aid in the development of China's economy and enhance a company's competitive edge, while also making it possible to meet the world's growing demand for iron and steel. It is a win-win situation for China's enterprises and foreign markets alike.

In May, Anshan Iron and Steel Group (Angang) signed agreements with United States-based Steel Development Co. LLC (SDCO) to build four 300,000-ton rebar plants and one electrical steel plant in the US state of Mississippi. Under the terms of the agreements, Angang will send technical, financial and management teams to take part in the daily operations of the plants. According to Angang's General Manager, Zhang Xiaogang, America's production capacity of wire and bar is unable to meet the demand of the domestic market. Taking less than 20 percent equity in the venture, Angang hopes to learn about the advanced technology and equipment used in the production of steel, and to train their staff.

The investment, which will benefit Mississippi's economy, has been met with objections, however. Over 50 US senators with connections to the iron and steel industry have appealed to US Secretary of the Treasury Timothy Geithner, claiming the deal with Angang poses a possible threat to national security and will harm the U.S. steel industry. An investigation has subsequently been launched.

It can be seen from the agreements that, while some rebar materials will be distributed by Angang and Japan-based Marubeni in the American southeast, the majority will go to Central America, South America and a number of other emerging markets. The US is not Angang's focus, but instead it is developing countries with rich iron ore resources and a large potential for growth in iron and steel demand.

The investment has nothing to do with harming the U.S. steel industry or threatening national security. Instead, it will reduce the strain on U.S. imports, create job opportunities within the country and help the U.S. manufacturing industry in its recovery. Globalization is a trend that all enterprises follow nowadays, and every country is increasingly opening itself up to others. Refusing investment from overseas could in fact harm a country's economy vitality.

China's steel output will reach over 600 million tons this year. China needs to exploit bigger markets. When a country is hoping to develop its economy, the iron and steel industry plays a crucial role in industrialization and urbanization. When China's large-sized iron and steel enterprises invest abroad, they aim to make the projects advantageous for all parties involved. They will invest in countries with iron ore resources, mining and steelmaking capabilities, and ultimately improve the construction of local infrastructure. Whether through independent investments, joint investments, or mergers and acquisitions, they strive to build a good relationship with local enterprises. For a cooperation to be successful, it must be based on mutual trust and support. Whatever the outcome of the investigation into Angang's U.S. investment, China's large-sized iron and steel enterprises will not give up on their strategy of expansion.

(關鍵字：China's steel)