Baosteel to move 30 pct capacity out of Shanghai

Chinese steel giant Baosteel Group Corp. said Wednesday that it will move 30 percent of its production capacity in Shanghai out of the city in five years.

Xu Lejiang, Baosteel's chairman, said the company will move 5.8 million tonnes of iron production capacity and 6.6 million tonnes of steel production capacity to plants in south China's Guangdong province and west China's Xinjiang Uygur autonomous region by 2017.

"The partial relocation is a self-initiated adjustment and also a coordinated transformation between the city, industry and enterprise," said Xu.

Baosteel will try to move up the value chain by producing more high-end products and developing new strategic areas, he said.

China's steel industry has been reaping meager profits since 2008 due to weak demand, high costs and excess capacity. Industrial upgrades are believed to be the next step in salvaging the sector as output expansion draws to a close.

Low profitability is expected to characterize the entire transformation period, Xu said.

"Don't expect that to change in the short term. This is impossible," he said.

Pollution is also a consideration, as the high emissions created by steel plants do not fall in line with Shanghai's efforts to clean up its air.

At an agreement-signing ceremony, Shanghai mayor Han Zheng said the relocation is a major move in adjusting the city's industrial structure and reducing energy consumption and pollution.

Baosteel estimated that the move will reduce energy consumption in Shanghai by 3 million tonnes of standard coal equivalent annually.

The Shougang Corp. and Chongqing Iron and Steel (Group) Co., two other large steel companies, have withdrawn all of their manufacturing capacity from Beijing and Chongqing as part of the two cities' efforts to reduce pollution and upgrade their industrial structures.