Baosteel to form 35.9 bln yuan Guangdong venture

Baosteel Group Corp., China's biggest steelmaker, and two rivals in the southern province of Guangdong agreed to form a 35.9 billion yuan ($5.2 billion) venture to help build a 60 billion yuan steel plant.

Baosteel will take 80 percent of Guangdong Iron & Steel Group, as the venture will be known, by contributing 28.7 billion yuan in cash, SGIS Songshan Co. said today in a statement to the Shenzhen stock exchange. SGIS's parent company and Guangzhou Iron & Steel Group will contribute existing steel assets to the venture. Details are still under discussion, SGIS said.

Shanghai-based Baosteel needs to ensure 10 million tons of older steel capacity in Guangdong is shut down to win final approval to build the 10 million-metric-ton-a-year plant in Zhanjiang, Guangdong province. China, which produces one third of the world's steel, wants to create fewer, more competitive mills to compete with global rivals.

The new Zhanjiang plant will supply Toyota Motor Corp. and Honda Motor Co. plants in Guangdong. It will boost Baosteel's capacity by 33 percent to 40 million tons.

The project could cost 60 billion yuan, company Chairman Xu Lejiang said in April. The economy in China, the world's biggest consumer and maker of steel, has grown on average by more than 10 percent a year since 2002, fueling demand for metals used in cars, ships and buildings.