ArcelorMittal Sees China Producing 60% More Vehicles in 8 Years

Jun 15, 2014 4:07 am ET

June 15 (Bloomberg) -- Automobile production in China, already the world’s biggest market, may climb about 60 percent in the next eight years, boosting demand for steel, according to ArcelorMittal, the largest producer.

Output may rise to 30 million units to 35 million units in the next seven to eight years, from 22 million units now, Lakshmi Mittal, the company’s billionaire chief executive officer, said today in an interview in Loudi, China, before the opening of a automotive steel venture with Hunan Valin Steel Co.

The plant increases ArcelorMittal’s exposure in China and pits the company against Baoshan Iron & Steel Co., which supplies half of China’s autosteel. Vehicle sales could rise as much as 10 percent in 2014, after increasing every year since 2000, the China Association of Automobile Manufacturers estimated in January.

“Automotive steel is the most profitable steel product with a fast and steady growth in demand,” said Sarah Wang, a Shanghai-based analyst with Masterlink Securities Corp. Valin is looking to the venture to help improve profits, she said.

Passenger-vehicle sales in China rose 13 percent last month, led by General Motors Co. and Ford Motor Co. as foreign carmakers continued to take market share from domestic producers. Overseas automakers are stepping up their investment in China to win sales in the world’s second-largest economy.

The nation produced 10.6 million vehicles in the five months ended May, including 5.6 million cars, according to data from the National Bureau of Statistics.

Autos, White Goods

The venture in Hunan province will have an initial production capacity of 1.5 million metric tons. The company will focus on making steel for autos and white goods in China, Mittal said today.

Luxembourg-based ArcelorMittal first announced a proposal for the autosteel plant in Hunan in 2008. It has 49 percent in the venture, with Shenzhen-traded Valin Steel holding the balance.

ArcelorMittal, which also has a 20 percent stake in the Chinese steelmaker, will eventually trim its holdings to 10 percent to focus on the automotive steel venture, Wang Jun, a vice president of Valin Steel, said by phone on June 13. Valin Steel has had two annual losses in the past five years as competition and increasing costs squeezed earnings.

The new venture will face competition from nearby steel producers including Wuhan Iron & Steel Co. and Chongqing Iron & Steel Co., analyst Wang said.

Fiat SpA has a car venture with Guangzhou Automobile Group Co. in Changsha, Hunan, while Nissan Motor Co. operates Japan’s largest automotive venture in China in nearby Hubei province. General Motors is also setting up a car plant in Wuhan.

Steel demand in China may grow 3 percent to 4 percent this year, from about 7 percent last year, Mittal said today. Steel demand growth in Europe and the U.S. is expected to be higher than last year, he said, without elaborating.

--With assistance from Keith Gosman in Sydney.