Flavio Dino, governor of the state of Maranhao in Brazil has a few things in common with China’s leader Xi Jinping. Both are members of their countries’ respective Communist Parties, for instance, and both have pledged to fight corruption.
Both may benefit from a new agreement to build a steel plant in the northeastern Brazilian state as well. For Dino, the steelworks would bring much-needed investment to one of the country’s poorest states. And for Xi, the investment could be a sign that China’s steel companies are getting the message that there’s too much steel at home. (Nor can the surplus simply be sold overseas, as the rising tide of anti-dumping cases against the Chinese demonstrates.)
Jiemian.com says the Chinese companies behind the joint venture are Shandong Taishan, Shandong Yiyuan, Beijing Huiquan and Maiduo Investment. One of the JV’s officials Zhang Shengsheng told the news website that the Maranhao state government has offered 20 square kilometres of land for free. Start-up capital for the project will be provided by China Development Bank and some of the capital equipment will be imported from redundant steel mills in China.
The venture’s vice chairman Xu Zhongbo also told the website that the partners have approached big steel producers such as Anshan Iron and Steel and Maanshan Iron and Steel for investment. Anshan’s chairman Tang Fuping says a feasibility study has not yet been carried out, but says the group would be interested if the project has a realistic chance of getting off the ground.
The caution is warranted. For years Baosteel tried to establish its own steel plant in Brazil in a joint venture with local giant Vale. That $3.6 billion project envisaged five million metric tonnes of production from a plant based on Sao Luis Island. But it ran into a host of problems including environmental protests and an intransigent local government, which wanted to move it to another location inland.
After three years of disputes, Baosteel and Vale tried to shift the project to another state, Espirito Santo, only to abandon the idea completely two years later after more environmental protests and falling steel prices.
Since then Maranhao has acquired its new governor. Two years ago Dino, a former judge, ousted the Sarney family, a powerful dynasty that had controlled the state for more than half a century. Local newspapers say he is prioritising the steel plan because he hopes that success with the plant will encourage other Chinese companies to invest in Maranhao. In return, the joint venture will benefit from a substantial reduction in state taxes for the first 15 years of its operations.
From the Chinese government’s perspective, shifting 10 million tonnes of surplus capacity offshore is encouraging. However, the switch would account for a tiny proportion of the overcapacity that the authorities are trying to shut down.
Although the announcements keep coming on how much of the sector is going to close (in February there was another pledge to withdraw 100 to 150 million tonnes of production over the next five years) progress on the ground has been painfully slow. Local governments don’t want to lose the jobs or give up tax receipts. And when mills have closed or been mothballed, it has been hard to stop them reopening when they glimpse higher prices.
In March China’s steel production actually reached an all-time monthly high of 70.7 million tonnes, with mills firing up again as steel prices began to creep up. The country now has official capacity of 1.13 billion tonnes, accounting for roughly half the global total, and last year it exported about 112 million tonnes, prompting protests from the European Union and the US, where the Department of Commerce announced new anti-dumping measures against China and Japan last month.
China’s Ministry of Commerce is upset, claiming that Washington is “deliberately suppressing the export of Chinese steel”. But it seems the EU could follow suit. Ahead of the G7 meeting in Tokyo this Thursday, European Commission President Jean-Claude Juncker told Reuters, “If someone distorts the market, Europe cannot be defenceless.”
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