Baowu Group Enters Aluminum Industry: A New Plant Will Be Put Into Production Within Two Years

On May 17, 2019, Zou Jixin, Chairman of Baosteel affiliated to Baowu Group, announced that Baowu Aluminum held by it is under construction and is expected to be put into full production within two years.

According to public information, Baowu Aluminum is located in Sanmenxia, Henan, and it is implementing a 600,000 t/a aluminium alloy intensive processing project. The predecessor of Baowu Aluminum is Tongren Aluminum founded in 2011. According to information on Tianyancha.com, Baowu Group acquired 51% of the shares of Tongren Aluminum in February 2019, and then changed the company name to Baowu Aluminum. After the acquisition, the registered capital of Baowu Aluminum increased from RMB 2 billion to RMB 3.5 billion, with the remaining 49% shares co-held by its original shareholders Henan Energy and Chemical Industry Group Co., Ltd. and Sanmenxia Municipal Investment Group.

Later, Baowu Group signed an agreement with Baosteel to transfer the management of 51% shares of Baowu Aluminum to Baosteel. Baosteel positioned Baowu Aluminum as its first-level subsidiary and assigned a management team.

Mr. Zou explained that Baowu Group intends to leverage Baosteel’s manufacturing and management capability to develop Baowu Aluminum into a competitive player in the automobile aluminum market.

At a speech during a visit to Baowu Aluminum, Mr. Zou said that the entrusted management of Baowu Aluminum can support the implementation of “one foundation and five sectors” strategy of Baowu Group, and the strategic transformation of Baosteel.

In its five-year plan published in 2017, Baowu Group proposed the industrial portfolio of “one foundation and five sectors”, namely the foundation of steel industry and five sectors of advanced material, modern trade and logistics, industrial services, urban services and industrial finance.

The initiative aims to realize the dynamic optimization of industrial portfolio, and mitigate the industrial cycle risk and ROI fluctuation. Baowu Aluminum falls under the advanced material sector in the portfolio, but it is not the first time that Baowu Group enters the aluminum industry.

In October 2018, Baosteel Metal Co., Ltd., a wholly-owned subsidiary of Baowu Group, invested RMB 360 million to acquire 8% shares of RSM, thus becoming the second largest shareholder of RSM. RSM is mainly engaged in production of aluminum and magnesium alloy used for 3C and automobile industry, with revenue of RMB 5.1 billion and a net profit of RMB 300 billion in 2018.

Baosteel is also seeking for a similar strategic deployment to respond to the new trend of lightweight automobile. Driven by the trend, major auto manufacturers are successively seeking for advanced lightweight materials as aluminum and manganese to replace heavy steel. Baosteel is now the largest autobody sheet manufacturer in China, occupying over 50% of the market share.

At the end of 2018, Dai Zhihao, the then Chairman of Baosteel, revealed that Baosteel was actively researching the auto aluminum industry and may enter the industry at the right moment.

Mr. Zou replaced Mr. Dai to serve as the Chairman of Baosteel this year. In his opinions, aluminum, manganese and other lightweight metals will inevitably see increasing consumption in auto manufacturing.

According to Mr. Zou, after the construction completion and being put into production, Baowu Aluminum will still face a long tough journey ahead for product upgrading and quality improvement, and long-term R&D investment and market development are required for its final entry into the auto aluminum industry.

On being asked whether Baosteel has the plan to develop Baowu Aluminum into a listed company, Mr. Zou didn’t give an explicit reply by saying “It is too early to talk about the issue, as we are focusing on putting it into production currently”.