Steelmaker bets big on diversification

Automobile-use products to help Tangsteel retain winning touch

Tangshan Iron and Steel Group Co plans to further expand its overseas businesses and manufacture more steel products for automobile use as part of its efforts to counter the slump in the Chinese steel industry.

Tangsteel, a subsidiary of China's largest steel maker Hebei Iron and Steel Group, reported a profit of 260 million yuan ($41 million) for the first 10 months, at a time when most of the other major Chinese steel companies reported deficits caused by shrinking demand and higher raw material prices.

"The overseas market for steel products is getting more and more sluggish because of the weak global demand," said Sun Junxue, an employee at Tangsteel's corporate culture department. "Against the gloomy situation, our exports are maintaining an upward momentum," she said.

By the end of November, Tangsteel's steel product exports had risen to 1.4 million tons covering more than 150 countries and regions, according to company data.

The company's exports of cold-rolled sheets, which are used for automobile manufacturing, reached more than 1 million tons during the first eleven months. The export of hot-rolled sheets, long products and medium and heavy plates, all of which are for automobile use, totaled more than 300,000 tons during the same period.

The company plans to double its current output of automobile-use steel products to about 800,000 tons in 2013.

"We began to sell our automobile-use steel products in overseas markets from 2009 onwards," said Sun. "We have doubled the export volume this year compared with what it was in 2009."

She said besides the overseas markets in the Middle East and Indonesia, the company has also entered the European and American steel markets and also in developed countries such as Germany and Italy.

Headquartered in Tangshan, Hebei province in North China, Tangsteel is a Chinese steel company with 70 years of history.

In June, the company received a $270 million structured steel prepayment loan from six international banks led by Deutsche Bank. The loan facilitates the prepayment of $270 million of its steel exports to global steel producer Duferco, the principal operating trade subsidiary of Duferco International Trading Holding SA, a global steel trading company based in Luxembourg.

Duferco is both the exclusive off-taker of steel products exported under this prepayment arrangement and a 10-percent risk guarantor.

"With this loan, Tangsteel is pioneering the use of overseas funds in the domestic iron and steel industry to expand its international business," said Yu Yong, general manager of Hebei Iron and Steel Group.

The company's steel output in 2012 was about 16 million tons. The steel products for automobile use accounted for a very small portion of the total output.

"Tangsteel's automobile-use steel production is still at an early stage currently," said Hu Yanping, a steel analyst with Umetal.com, a domestic industrial information provider. "The company has made much progress in steel products for electronic appliances in recent years."

"The automobile-use steel sheets represent high-end products with good quality. We have improved our capability levels by producing export-quality products," said Sun. "However, it is not our only focus."

The decline in Japanese automobile sales due to the recent political disputes has not affected Tangsteel, as Japan is not a major export market for the company, said company officials.

Tangsteel's overseas focus does not just end with owning expensive high-end manufacturing equipment and production lines, said Yu of Hebei Iron and Steel Group.

"Our strategy is to improve the quality of existing products and make them the market toppers, be it for automobile use or for construction or electronic home appliances," he said.

"The market is changing all the time," said Sun at the corporate culture department of Tangsteel. "We cannot stop the change of the market, but we can improve our products to satisfy the market and increase our competitiveness."

China's steel production capacity has in recent times far exceeded demand, thereby creating a glut. The government has been encouraging the industry to become more concentrated through integration.

Domestic steel companies have been making efforts to survive competition and bolster their weak economic performance by reducing raw material costs and producing high value-added products.

Some companies have also enhanced their upstream businesses by acquiring overseas mining resources in an effort to reduce iron ore costs.

However, many of them did not taste success due to factors such as political risks, unexpected higher exploration costs, management shortages and lack of operational experience in foreign countries. Tangsteel, however, chose a different path by making both its services and products better, especially in its marketing strategies.

"There are products that were particularly designed and developed for a foreign client from the Middle East," said Yang Bianjiang, a technician at the company. "We produce certain kinds of steel sheets with individualized requirements to meet their needs."

It doesn't matter how advanced our company's facilities are. But it does matter who is using them, said Yu.

He believes that in such a gloomy economic situation market competition is not only between steel products, but also in the way companies do their business.

"Getting orders was never a problem for us in the past. Buyers often came to us," said Sun. "But things have changed fundamentally."

The company has sent about 100 technicians to the market to further improve its services for potential buyers.

"They are better equipped to explain our products," said Sun. "The market information they collect is valuable to the company as well. The production lines should know where the products go and how they are used."

"China's steel industry should learn more from the manufacturing companies to establish the brand and service," said Yu of Hebei Iron and Steel Group. "Our strategy is to sell steel like household electronic appliances with full services."

dujuan@chinadaily.com.cn