General Steel targets top 10 spot through expansion, acquisitions

PUBLISHED : Monday, 16 February, 2009, 12:00am
UPDATED : Monday, 16 February, 2009, 12:00am

General Steel Holdings, a New York-listed mainland steelmaker, aims to become one of the top 10 players on the mainland by expanding existing operations and acquisitions, said founder, chairman and chief executive Henry Yu Zuosheng.

'This year, [mergers and acquisitions] will be one of the company's main tasks and you will see progress amid the rapid change and consolidation of the mainland steel industry,' Mr Yu said.

The company agreed in September last year to buy 80 per cent of Yantai Steel Pipe from Shandong-based Laiwu Iron & Steel Group.

General Steel, which has an annual capacity of 4.8 million tonnes through four ventures on the mainland, will add 500,000 to 600,000 tonnes with the Yantai Steel deal.

Mr Yu said more steelmakers had started talks on co-operation or mergers with the company recently, especially small and medium-sized mills amid the tough operating environment.

He declined to give specific targets, only saying the company might make some acquisitions in the eastern coastal area.

'Our strategy is not to restrict our production base to only one province but diversify in different regions,' he said.

'The steel business needs economy of scale, but the metal's bulky nature also means we need to consider transport costs.'

Based in Beijing, the steelmaker has plants in Shaanxi, Tianjin, Inner Mongolia and Guangdong, which mainly produce long steel products for building and construction.

Mr Yu did not give a projection on General Steel's production scale or a timeframe for entering the mainland's top 10.

He admitted that the company was only a medium-sized steelmaker but with its unique position, such as being the only New York-listed Chinese steelmaker, capital strength and western style management, he was confident of achieving the company's goals.

Despite reporting a loss of US$1.6 million in the first nine months last year, compared with a US$10.4 million profit in the same period of 2007, Mr Yu said the situation would improve this year.

'As our product mix is geared towards infrastructure and rural development-related products, we'll likely benefit from the government's 4 trillion yuan [HK$4.53 trillion] economic stimulus package,' he said.

Mr Yu said long steel product prices had stabilised and might climb later this year, when the impact of Beijing's stimulus measures, which also includes rescue packages for other sectors, took effect.

The industry had entered a 'low-cost, low-price' era, which would give long-product steelmakers reasonable gross profit margins of 7 to 8 per cent, he added.

'Together with our enlarged production scale after two new blast furnaces at the Shaanxi plant began production late last year, I'm confident that prospects are bright this year,' Mr Yu said.