Baosteel considering relocation

Shanghai Baosteel Group Corp may consider moving its production base out of the city in response to environmental concerns about its operation.

At an industry conference held on Tuesday, Xu Lejiang, chairman of Baosteel, said local officials had once treated his company as if it were some kind of a "fortune cookie", but that it has recently become a piece of "smelly tofu" in their eyes.

Steel manufacturers are notorious for polluting the air and water in China. Xu said the government and citizens have become more eager to protect the environment in recent years, a change that has put greater pressures on corporations.

In 2005, Shougang Group, a large steel producer, began moving its production base out of Beijing to Caofeidian, in Hebei province, in response to environmental concerns.

Five years later, the company closed down its entire production operation in Beijing. The relocation cost more than 50 billion yuan ($7.9 billion).

"The situation that Shougang Group had to face could be similar to what Baosteel Group will have to face in the future," Xu said. "We need to consider how long we can stay in Shanghai and we need to try to find the right solutions."

Baosteel has built several manufacturing bases in various places throughout China and is expected to expand the production capacity of those operations in the coming years.

The company plans to invest 41.8 billion yuan in its subsidiary Xinjiang Bayi Iron & Steel Co Ltd to boost its annual production capacity to 15 million metric tons and its sales revenue to 70 billion yuan a year by 2015.

In addition, Baosteel is preparing to produce iron and steel in Zhanjiang, a city in Guangdong province, according to media reports. The total investment in the project might reach 63.5 billion yuan and its annual production capacity 10 million tons. The plan is awaiting approval from the central government.

Experts said Baosteel will be able to expand in the steel business by seeking development opportunities outside Shanghai.

"Governments want companies to pollute less and Baosteel also needs to try to expand in the steel business," said Wang Jianhua, an expert from Mysteel, an information agency in China.

"So it became necessary to move out of Shanghai."

Wang said building up a construction base in Zhanjiang will help Baosteel lower its shipping and storage costs and better meet South Asian demand for its products.

The 12th Five-Year Plan (2011-15) for the steel industry, which was issued by the Ministry of Industry and Information Technology, calls for moving steel manufacturing bases out of urban areas.

The plan says several steel manufacturing bases, including Masteel (Hefei) Iron and Steel Co, a subsidiary of Maanshan Iron & Steel Co Ltd in Anhui province, might be moved out of urban areas.