LONDON, Nov. 18, 2019 /PRNewswire/ -- The steelmaker Hebei Jingye Group, China's largest privately held rebar producer, has agreed to buy British Steel, subject to regulatory approval. How could a Chinese company benefit from the purchase of this UK steelmaker? We will consider and evaluate the key factors in this decision.
Can Scunthorpe fill a production bottleneck?
Jingye Group produces a variety of steel across both flat and long products, with a portfolio that spans rebar, plate, hot rolled coil and more. Their production facilities in Nandianzhen are top heavy, with greater finished steel rolling capacity than steelmaking capacity. It is not uncommon for steel mills to be organised in this way, as it allows for production to flex between product types depending on market demand.
In theory, billet or slab from Scunthorpe could be shipped to China to then be rerolled into finished products – in practice this is unlikely to be profitable for several reasons. Semi-finished products can be sourced locally at cheaper prices and lower lead times from either the domestic market or South East Asia. Beyond this, Scunthorpe's existing hot end is relatively high cost, and when compounded with freight rates this will probably render this an uncompetitive option.
… and what about higher carbon grades of semi-finished steel?
Scunthorpe has the capability to produce high carbon grades of semis, potentially offering a product which cannot be sourced locally as easily. The Jingye Group's facilities are located around 300km inland, inflating freight costs but leaving them about as well placed as most of the large Chinese exporters. Moreover, the Chinese government has ordered several steelmakers including Jingye Group to relocate their facilities – potentially closer to the coast – making such a trade route more viable.
Would high carbon semis be interesting for Jingye Group? We believe so, as this offers them an entry into a longer-term growth sector of higher value than construction steel.
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