Baosteel paces China steel reinvention
Industrial transformation is now a central task for China’s iron and steel industry. A combination of backward technology, bureaucratic management of the mostly state-owned iron and steel works, high iron ore prices that are controlled by exporters and mounting environmental pressure has weakened the country’s “backbone” industry.
Companies are adapting to the changing industry dynamics and Baosteel, the largest steel company in Shanghai and the most lucrative steel firm in China, is a good example of this transformation. The company is expanding into new sectors that are related to making steel, which contributes to about 28 percent of the group’s total profit. Out of 130,000 workers, nearly 50,000 are working on new products and services that include resource development, logistics, auto-sheet manufacturing, engineeringtechnical services, coal and chemical applications, finance and production service.
“Baosteel’s transformation efforts bear relevance to the whole industries,” said the Beijing-based China Iron and Steel Association in an assessment of the company.
The central government imported equipment from Japan and constructed Baosteel in Shanghai in 1978, after the “cultural revolution” (1966-76) ended, as an industrial symbol of China’s recovery from political movements.
Baosteel now produces about 5 percent of the steel output in China which totals about 1 billion tons a year. Its net profit accounts for about 20 to 40 percent of the industry total.
“Developing new industries is to serve our main business,” noted Xu Lejiang, president of Baosteel. “But we always do the new industries according to their respective laws of development. We will not do them well if we always define the new industries as a supplementary business for making steel.”
Auto-sheet manufacturing is a good example of Baosteel’s new industry that Xu likes to discuss.
China produced 22.12 million automobiles last year. Baosteel sold 6.74 million tons of auto sheets for nearly 80 percent of the automobiles produced last year, of which 5.37 million tons are the more advanced cold-rolling auto sheet, Baosteel’s staple autosheet product. Baosteel has more than 50 percent of the domestic cold-rolling auto sheet market.
Baosteel pays special attention to automaker requirements for auto sheets at an early stage of auto production, which is called EVI, or early vendor involvement. This strategy stems from Baosteel’s early cooperation with the Changchun-based
eloping new industries is to serve our main business. But we always do the new industries according to their respective laws of development. We will not do them well if we always define the new industries as a supplementary business for making steel.” XU LEJIANG PRESIDENT OF BAOSTEEL
First Automobile Work and Shanghai Automotive Industry Corporation in the 1990s.
Baosteel participates in the automakers’ designing and mould- making processes directly. To make the auto sheet lighter, stronger, and more environmentally friendly, Baosteel has never stopped increasing research and development efforts.
Baosteel’s auto sheet is more expensive than the average price of its domestic competitors. But its product remains popular among automakers from home and abroad for its reliability and quality, which helps automakers save money.
Baosteel is the only supplier of the first, second and third generations of high-strength steel. It is also the only autosheet maker in China that can make hot-rolling acidpickling sheets used in passenger-car chassis and structural parts, and cold-rolling, hot-galvanizing, Zn-Fe alloy and electro galvanizing auto sheets.
Baosteel also builds a complete material database on all automobile steel parts in China.
“Although we are the largest auto sheet supplier in China, the technological gap between the world’s top auto sheet makers in Japan, South Korea and Europe, and Baosteel remains wide. We can satisfy the various kinds of demands in Chinese market, but for individual category of vehicles, we still have a long way to go,” said Bao Ping, chief engineer of Baosteel’s auto-sheet department.
Baosteel also transplants the EVI concept and technologies accumulated in making auto sheet to other relevant businesses like making sheet for household appliances, electrical steel and metal wrappings.
“The auto sheet industry is a typical example for Baosteel’s transformation and Baosteel has successfully joins in the value-making activities of global supply chains of relevant industries,” said Ping.
Another innovation that Baosteel initiated in China is the establishment of an online platform in 2013 which is now developed to be the largest online regional steel trade market in East China known as the Shanghai Iron and Steel Trade Center.
Last year, the trade center’s transactions were about 9.5 billion yuan ($1.6 billion) on nearly 4 million tons of steel that attracted 28,000 customers and 725 suppliers.
By 2018, 20 percent of Baosteel’s product and service sales revenue will be traded through the online platform, which is open for all customers and suppliers in the industry.
“Serving the customers’ long-term needs will bring us sustainable revenue,” said Xu Lejiang. “The transformation of manufacturing industry lies in the changing of its position from self-centered production to customer-oriented services, and the development of information and network technologies should bolster the transformation.”
Baosteel also founded Baosight Software in 2000 to digitize and its steel production.
“What Baosight Software does, to some extent, is similar to the concept of Industry 4.0 a proposal by the German government that features computerization of traditional industries,” said He Chao, Baosteel spokesman.
Thanks to the development of cloud computing, Internetof-things and intelligent manufacturing in recent years, Baosight Software saw bigger business opportunities from the construction of smart cities and urbanization in China.
Baosight Software now has nearly 20 branches in China, and its sales revenue hit 3.6 billion yuan last year.
“That Baosteel attaches great importance to automation of its industries from the very beginning of its operation laid a solid foundation for Baosight Software’s growth today, compared with other competitors. Baosteel’s involvement in infrastructure construction in a number of national projects also helps it to penetrate into the thirstiest market for service solutions,” he added.
“But the hardware parts remain the most difficult obstacles for Baosight in putting its software into practice.”
As for its main business, Baosteel set up two steel production bases in Xinjiang and Zhanjiang of Guangdong province in 2011 and this year.
“The Xinjiang branch is to tap into the resources in the Central Asia and the Zhanjiang branch is to make use of the convenient harbors and satisfy the Pearl River Delta’s demands for steel,” said Xu Lejiang. Both the two factories are to relocate the productivity removed out of Shanghai.
“The tensions from the industry and the environment leave Chinese iron and steel industry no choice but restructuring and relocating its businesses. The transformation of Baosteel is far from finished. But I am confident we are doing our best in the right direction,” Xu noted.
The auto sheet workshop in Baosteel in Shanghai. Baosteel now produces about 5 percent of the steel output in China.