Companies

Baosteel chief urges innovation in downturn

By Wang Ying (China Daily)
Updated: 2010-11-19 11:08

SHANGHAI - There is no King Canute to turn the tide for China's steel smelters who are wrestling with a below-average profit margin in the industrial sector, but greater efforts in structural adjustment, consistent innovation and less pollution may pay off in the long run, said an industrial leader.

"Global steelmakers have been undergoing unprecedented hardship in business operations since the outbreak of the financial crisis two years ago, and this situation will keep worsening for quite a long time," said He Wenbo, general manager of Baoshan Iron & Steel Co Ltd (Baosteel).

"Rising costs of both labor and raw materials, along with public concerns on environmental protection, have compromised the steel sector's profit. It's time to make changes," he added.

Not every company will survive the restructuring, especially when China is saturated with a myriad of low-efficiency and high-pollution mini-steelmakers.

But the industrial shake-up gives Shanghai-based Baosteel an opportunity to become stronger through "consistent innovation and structural adjustment".

In order to form a better picture of future developments in the Chinese steel industry, the Fourth Biannual Baosteel Academic Conference invited more than 20 prestigious experts from overseas to discuss the latest technological innovations in steel manufacturing.

Hanging over the forum was the unpalatable fact that the average profit margin for China's medium and large-sized steel makers was only 2.84 percent in the first nine months of this year. In September alone, the steel industry's profit rate was 1.16 percent, much lower than China's average industrial profit margin of 5 percent, according to Zhang Lin, an analyst from Lange Steel Research Center.

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"Outdated industrial structures and a lack of value-added products are the main reasons for the low profit rate," Zhang said.

"As a rapidly growing industry, steelmaking will have one-third of its existing products replaced about every ten years, and all the steel enterprises should innovate consistently," Zhang added.

In recent years, Baosteel has been a pioneer in the practice of innovation and greener production. The company applied for patents on 7,044 items in 2009, an increase of 20 percent year-on-year.

In December 2009, a cold-rolling mill at Meishan Steel (a holding company of Baosteel) was officially put into production.

This marked a breakthrough for Chinese steel manufacturers in upstream technology competition with foreign counterparts, mainly companies from Germany and Japan.

Meanwhile, Baosteel recycled up to 97.6 percent of the industrial water used in its group processes and more than 98 percent of solid waste, thereby lowering production costs and lessening environmental pressures.

"The steel industry should adapt to changes in the macro environment, and to show the world that steel can be both innovative and green," said He.