Baosteel's Zhanjiang Project and Wuhan Iron and Steel's Fangcheng Port Project Approved

SHANGHAI, May 9 (SMM) -- Steelease confirms that the State Council approved Baosteel's Zhanjiang project and Wuhan Iron and Steel's Fangcheng port project were approved by the State Council on May 1st, which had been postponed for over three years. Total projected capacity of Baosteel's Zhanjiang project is 20 million mt/yr, with 10 million mt/yr of high-end sheet capacity in the first phase, while total projected capacity of Wuhan Iron and Steel's Fangcheng port project is 30 million mt/yr, with 10 million mt/yr of high-end sheet capacity in the first phase.

Steelease believes both Baosteel and Wuhan Iron and Steel will accelerate construction in the two steel production bases with the approvals, which will significantly affect China's iron and steel industry in the following years.

First of all, the construction of the two projects will allow Baosteel and Wuhan Iron and Steel to step up efforts eliminating existing outdated capacity. The first phase of Fangcheng port project is based on the elimination of 5.41 million mt/yr of pudding capacity and 9.1 million mt/yr of steelmaking capacity at Liuzhou Steel and Wuhan Iron and Steel, which will force Wuhan Iron and Steel to further contract its high pollutant project in Wuhan. Guangzhou Iron and Steel will eliminate all pudding, steelmaking and steel rolling capacity by the time when Zhanjiang project is finished.

Besides, the two projects will help improve domestic supply in some regions. Self-sufficiency rate of steel in Guangxi, Sichuan, Chongqing, Yunnan and Guizhou is only 60%, as China west development gathers pace, potential demand is huge in the market. Wuhan Iron and Steel's Fangcheng port project will cover Southwest China market efficiently. The Zhanjiang project mainly produces high-end auto sheet and electrician sheet. Guangdong province is developed in the automobile and home appliance industry, with strong demand for high-end plate and sheet.

In addition, the two projects will help reduce production costs of the two steel plants, raising competitiveness of plate and sheet. Wuhan Iron and Steel is located in inland, with 80% of ore imported and high transportation costs. Fangcheng port is one of the nearest ports to Australia, and Wuhan Iron and Steel will reduce ore transportation costs to building blast furnace there. Likewise, Baosteel can also save freight charges relocating capacity to Zhanjiang.

But there are potential concerns over the two projects. Both the projects produce electrician sheet and automobile sheet, while Zhanjiang is only 300 km away from Fangcheng port, which will allow them to compete excessively. Besides, as Angang, Masteel and Shasteel are developing sheet markets, China's sheet capacity will surge once Zhanjiang and Fangcheng port projects come line, forcing outdated capacity out of the market.