Baosteel pulls investment out of Handan venture

Shanghai, August 18 (Gasgoo.com) China's largest steel-maker Baoshan Iron & Steel Co. (Baosteel) has pulled its investment and management out of a joint venture with Handan Iron & Steel Co, which now is wholly owned by Hebei Iron and Steel Group, Chinese media reported yesterday.

The reason behind the withdrawal is that the cooperative terms have changed and Baosteel has not secured the controlling stake in the venture. To maintain its leadership in China's steel industry and answer the government call for mergers, Baosteel has been seeking expansion by merging minor steel mills in the country.

Early in May 2007, Handan Iron & Steel and Baosteel Group jointly funded a venture Handan Iron & Steel Co. to build a production base with an annual output of 4.6 million tons of steel plate products. The registered investment was 12 billion yuan ($1.76 billion) with each holding 50%. Baosteel also sent its executives to manage the venture.

"Baosteel owned half of the stake at the beginning, but it expected further control of the venture and then penetration into the overall Handan Group," said an industry analyst. But since late 2008, Hebei Iron and Steel Group has been restructuring all steel companies in the northern Chinese province to form a steel-making giant.

Baosteel has now transferred its assets of the venture, not only the interests, but investment in the newly launched production lines and equipment. The withdrawal has shocked Baosteel's status as China's No.1 steel producer. Still, it is coveting other steel mills, such as those in Guangdong and Jiangxi provinces.