China Daily reported that Baoshan Iron & Steel Co Limited is heading southward. The Shanghai based steelmaker will launch a strategic project in Zhanjiang in Guangdong province in 2011.

According to a report by the China Iron & Steel Association, the average profit margin for 77 steel makers was 2.91% during the first quarter of 2011, much lower than the country's average industrial profit margin of 6.2%.

According to Mr He Wenbo chairman of Baosteel, Baosteel has dominated the carbon steel plate market in eastern China, and the next step is to copy its success in the south.

Zhanjiang is a natural deep water port and the nearest in China to receive iron ore imported from Australian mines. The expansion plan was discussed for quite a few years, but overcapacity in the steel industry and the global recession hampered the progress of Baosteel's project.

Baosteel set up a JV with Guangzhou Iron & Steel Co Limited and SGIS Songshan Co Limited as early as 2008 for the Zhanjiang project.

According to the JV agreement, Guangzhou Iron planned to gradually reduce steel production from its outdated capacity and that was to be replaced by the future Zhanjiang project.

The project is designed with an annual production capacity of 5 million tonnes of high end steel and will expand to 10 million tonnes in the future. The project is expected to involve investment of CNY 70 billion.

The National Development & Reform Commission gave approval to the project's preparation work in March 2008, but no further progress has been made since then.

(Sourced from China Daily)