Baoshan Iron and Steel Company Ltd (Baosteel) and the Tokyo-based Nippon Steel Corporation (NSC) signed a letter of intent yesterday to set up a joint venture they hope will become the best auto sheet producer in the world.

The two companies will jointly develop a 1,800-millimetre cold-rolled strip mill, which is now under construction.

The mill will cost a total of 6.5 billion yuan (US$785 million). Baosteel will own a 50 per cent stake, with the rest of the shares held by foreign partners.

Mimura Akio, representative director and president of NSC, said NSC will hold up to 35 per cent of the total shares, making it the company's largest overseas joint venture.

He also revealed NSC and Baosteel want to attract the European-based Arcelor, the world's largest steel producer, to become the third investor in the joint venture.

The joint venture contract will be signed at the end of this year with a term of 20 years. Baosteel and NSC will share a single seat on the board.

The president of the joint venture will be nominated by Baosteel and the vice-president will be nominated by NSC to lead the management team.

According to Ai Baojun, general manager of Baosteel, the joint venture builds on the two companies' common vision for the booming auto sheet market.

Ai believes the demand for high quality auto steel will grow even more rapidly in the medium and long term, with more international automakers setting up in China to capitalize on the increasing popularity of automobiles.

Mimura Akio added that as the auto market grows, automakers are asking their foreign authorized suppliers to localize their production bases, which also provides good opportunities for Baosteel and other Chinese steel companies to penetrate the market.

The joint venture will mainly specialize in high-level auto sheets production and marketing, catering to the demands of the prosperous auto industry in China.

The annual production will reach 1.7 million tons of steel once the mill is completed in 2005. Of the total, cold-rolled steel sheets will account for 90,400 tons and hot dip galvanized steel sheets will make up the remainder.

Ai said market demand and competition is increasing pressure on steel makers around the world to merge, acquire new holdings and restructure. "It is necessary for us to form strategic alliances to improve efficiency, reduce costs and enhance competitiveness," he said.

Ai said the 1,800 millimetre cold-rolled strip mill project will benefit both parties. Baosteel will gain technical support from NSC to produce more advanced auto sheets.

Currently, Baosteel accounts for half of the auto sheet market in China. However, after it introduces the latest auto sheet technologies from NSC, it hopes to increase its market share both at home and abroad.

Meanwhile, NSC can better serve its auto customers locally with the joint venture as its production base.

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