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Baosteel to control costs through shipping venture
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08:33, February 22, 2008

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SHANGHAI: The nation's largest steelmaker Baosteel and shipping conglomerate China Shipping Group will form a joint venture that would provide Baosteel with ships for iron ore imports.

"It (the joint venture) will help Baosteel to control shipping costs and help China Shipping to increase market share," Li Shaode, president of China Shipping, said yesterday.

The joint venture will provide Baosteel with two 300,000-ton bulk cargo ships and four 230,000-ton bulk ships. Baosteel, which relies heavily on iron ore imports, will use five of the ships and the sixth will be leased to other companies, Li said.

The joint venture will be 51 percent owned by China Shipping and 49 percent by Baosteel. It will be registered in Hong Kong. The joint venture will begin operation this quarter with registered capital of $8 million, accounting for 20 percent of the ship manufacturing fee.

"The total loading of the joint venture is expected to double to 3 million deadweight tons by 2015," Li said.

Gao Bo, an analyst at Mysteel website, said the joint venture will help Baosteel to control its shipping costs as global sea transport costs soar.

"It is also in line with Baosteel's strategy to diversify its business and will help Baosteel to gain profits," Gao said.

Xu Lejiang, chairman of Baosteel, said yesterday the steelmaker had not yet decided to accept the 65 percent price rise in talks with the world's three largest iron ore producers.

But analysts said Baosteel would probably accept the terms going by previous negotiations, which will largely increase the company's costs.

"Baosteel will raise steel product prices for the second quarter by the end of this month," Xu said.

Baosteel's iron ore imports were around 34 million tons in 2007 and its steel production capacity was 23 million tons in 2006.

China Shipping now owns 436 ships with a total loading of 17.68 million deadweight tons. Its annual transport capacity was 370 million tons.

Source:China Daily

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