The agreement in principle is for a joint venture to make steel for the mainland's rapidly expanding car sector China's largest steel-maker, Baoshan Iron & Steel, has reached an agreement in principle with Japan's Nippon Steel on the establishment of a 6.5 billion yuan (HK$6.09 billion) joint venture to make steel products for China's booming car industry. The mainland is the world's fastest-growing car market, with its consumers snapping up 842,780 cars in the first half of this year, 82 per cent more than in the same period last year. The market expansion has seen an investment rush by European, American and Japanese car-makers to set up joint venture plants on the mainland to get around trade barriers and take advantage of China's lower production costs. The country's booming exports, construction and infrastructure sectors have also bolstered demand for steel products used in oil and gas pipelines, container ships, buildings and bridges. The Baoshan-Nippon Steel joint venture has drawn expressions of interest from other foreign firms, with the world's largest steel-maker, Arcelor, saying it intends to participate in the project and Japanese trading giants Mitsubishi and Mitsui also reportedly expressing interest. Nippon Steel said it had signed a letter of intent with Shanghai-listed A-share Baoshan Iron & Steel to set up a 50-50, 20-year joint venture to make automotive steel sheet. The venture will build production lines with the capacity to make 1.7 million tonnes of cold-rolled steel coils, of which 900,000 tonnes will be hardened steel and 800,000 tonnes galvanised. The two firms aim to sign definitive agreements this year, with the venture planned to start production in May 2005. A spokesman for Luxembourg-based Arcelor said the company had 'the intention in principle' to participate in Baoshan and Nippon Steel's joint venture but he could not comment further. Bloomberg quoted a Mitsubishi spokesman as saying the company was studying the project but had not been contacted to invest in it, while a Mitsui spokesman said it would 'gladly look into' the project if invited to do so by Baoshan and Nippon Steel. According to a Baoshan official, it is up to Nippon Steel to introduce more foreign investors into the project, with Baoshan intending to hold a 50 per cent stake regardless of the final foreign shareholding. He also said Baoshan and Arcelor were in advanced talks on a separate joint venture to make steel products targeting China's car industry and may make an announcement as soon as the end of this month. Arcelor had reportedly been invited by Baoshan's parent Baosteel Group to invest in a proposed US$8 billion joint venture plant in Brazil with Brazil's Companhia Vale do Rio Doce, which will have the capacity to make three million tonnes of rolled steel a year. Despite being the world's largest steel producer, China's lack of iron-ore deposits and a fragmented industry, producing mainly lower-end products, have pushed Baosteel to venture abroad to seek foreign partners with access to the raw materials and technology needed to satisfy China's thirst for higher-end steel products. Baoshan said late last year it would invest 12 billion yuan in improving its capacity to produce steel products used in cars, ships and pipelines. At the time, it forecast demand for cold-rolled coil - a high-end product - would rise to 20 million tonnes by 2005, up from 17 million tonnes in 2000. The company's first-half turnover rose 45.5 per cent year-on-year to 22.1 billion yuan, while its gross profit margin jumped 43.4 per cent to 33 per cent on the back of sharply higher steel prices. Its first-half net profit rose 182.5 per cent year-on-year to 3.8 billion yuan.