Overseas production makes sense for China's steel firms

Necessity - long revered as the mother of invention - is contributing to a major shift in the manufacturing strategies of large mainland steel companies.

While they have looked overseas to secure raw material sources for years, Chinese steel producers recently have begun moving initial production processes offshore as well.

This new tactic stems from a host of factors, including a desire to reduce shipping costs, the availability of cheaper power overseas and pressure from the Chinese government to reduce pollution at home.

In the latest example of a trend that is further integrating the mainland and global economies, Shanghai's Baosteel Group, China's largest steelmaker, and Brazil's Companhia Vale do rio Doce (CVRD) last month commissioned a feasibility study on a joint-venture steel slab plant. It was touted as potentially the largest investment in Brazil's steel industry in many years, with an initial annual capacity of 3.7 million tonnes.

The world's largest steelmaker, Luxembourg-based Arcelor, also intends to participate in the project, which could cost as much as US$2.5 billion if capacity is eventually expanded - as mooted - to 7.5 million tonnes.

For Baosteel, the project is central to its global ambitions and is also aimed at strengthening its relationship with CVRD - the world's largest producer of iron ore and one of Baosteel's key suppliers.