Shougang Group make losses after relocation

Shougang Jingtang Corp, the renamed Shougang Group after moving from Beijing to Hebei province, has lost over RMB 10bn ($1.628bn) in the past four years.

The company lost RMB 530M in 2009 ($86.32M), when the first high furnace was put into production, and in 2010 it lost RMB 3.137bn ($510.9M) in 2010, and further RMB 5.141bn ($837.3M) in 2011. “Last year, the firm was estimated to have lost billions of RMB again,” a source added. The Shougang Group, which used to be based in Beijing has been moved to Cao Fei Dian, a small island located south to Tangshan city, Hebei, on the decision of the government. The new firm was first co-invested by Shougang Group and Tangshan Iron and Steel (Tanggang). Tanggang later withdrew its stakes in the firm.

Construction of the flats steel producer started on March 12, 2007 when steel sheet enjoyed high prices in China. But steel sheets became oversupplied and prices dropped sharply three years later after the firm started production. Shougang Jingtang is built with high-tech equipment, designed to produce mainly high-value added steel sheets for automobiles, ship building and household appliances. “Though Shougang Jingtang use high-grade imported iron ores, it does not have the ability to produce first-class steels,” steel analyst Qin Fenfen said.
Some 90% of the products by Shougang Jingtang should be high-tech and high value added, but first-class equipment does not necessarily lead to first-class products. Meanwhile, Shougang Jingtang has limited distribution channels, and its products are not widely recognized on the local market.

Shougang Jingtang was designed with an annual production capacity of 9.89Mt of iron, 9.7Mt of crude steel and 9.05Mt of steel products after the first phase of construction. Against the backdrop of sluggish steel demand, the firm is producing on orders, leaving some capacities unused.

The central government decided to move Shougang Group to Cao Fei Dian in 2005. The project almost amounted to one fourth of the total investment going into Cao Fei Dian in recent years.

Source: China Metals e-mail infochn@public.bta.net.cn