China's Baowu looking into plans to move blast furnaces to Cambodia

Beijing

CHINA'S top steel maker Baowu Group is studying plans to relocate blast furnaces from remote Xinjiang to Cambodia in a bold example of China's heavy industry shifting excess capacity overseas, a source familiar with the firm's plans said.

The move, which would mark Baowu's first overseas production, shows the lengths Chinese steelmakers are prepared to go to maintain output levels despite Beijing's drive to cut industrial slack in the mainland.

Baowu is looking at the feasibility of shipping two blast furnaces, with a combined capacity of 3.1 million tonnes, along with two converters to turn iron into steel, to Cambodia in late 2019, said a senior Baowu manager involved with the plan.

China has shut more than 150 million tonnes of steel capacity in the past three years as part of a campaign to modernise its economy, but still accounts for half of global output, with capacity of 980 million tonnes a year.

The equipment to be moved would come from Xinjiang Bayi Nanjiang Steel Baicheng Co Ltd, a Baowu subsidiary based in Aksu in far northwest China.

The plant in Cambodia was shut in 2017 and sits some 4,000km from Phnom Penh.

"This equipment may be seen as outdated in China, but it is still quite advanced in Cambodia," the manager said.

Analysts said establishing a steel industry in Cambodia - either shipped in or newly built - will present challenges. "It would be very difficult to set up steel mills in Cambodia, given their lack of infrastructure like railways and utilities, and a noncommittal investment environment," said Ming He, analyst at Wood Mackenzie in Beijing.

However, Baowu is hoping to cash in on a local construction boom. Cambodia, which imports all its steel needs, is rapidly urbanising, building major infrastructure projects including ports, freeways and residential and commercial properties.

"Since Chinese investments are driving the construction boom in Cambodia, it seems natural that Chinese investors will also find it beneficial to set up a steel plant to cater to this demand," said Arshiya Sibia, an analyst at CRU in Singapore.

However, moving blast furnaces and other large equipment from China's remote north-west interior all the way to southern South-east Asia in a cost-effective way will be a challenge.

Baowu is also weighing other locations. "Cambodia is a preferred option ... But we also have a back-up plan of moving them (the furnaces) to Pakistan," said the Baowu manager. The firm is also looking into expansion in Chile, he added. REUTERS