Cablegate: Angang Steel Hopes to Grow at Home and Abroad

DE RUEHSH #0152 2150846
P 030846Z AUG 07




E.O. 12958: N/A

1. Summary: Zhang Xiaogang, Chairman of Anshan Iron and Steel
Corporation (AnSteel), recently discussed an impending meeting with
John Surma, President of International Iron and Steel Institute and
potential cooperation with U.S. Steel Executive Committee of the
IISI in New York on July 12 and 13, 2007 Executive Committee of the
IISI in New York on July 12 and 13, 2007, and what appears to be a
nearly final deal with Ford Motor Company for AnSteel to provide
sheet steel for Ford's auto body panels. Zhang also reported that
the merger of AnSteel with Benxi Iron and Steel (BenSteel) was
moving along, albeit slowly, and said that plans from the central
government called for the merged company to eventually become the
sole remaining steel company in northeast China. End Summary.

2. Before getting his visa for a previously unplanned, mid-July trip
to the United States, Zhang Xiaogang, Chairman of AnSteel and new
President of China Iron and Steel Association, told us how he had
suddenly been invited by John Surma, President of International Iron
and Steel Institute (IISI), to attend a meeting of the Executive
Committee of the IISI in New York. Earlier in the month, Surma had
unexpectedly visited AnSteel, China's second largest steel producer,
specifically to invite Zhang to the meeting, and to encourage
greater cooperation between Chinese and American steel producers.
Zhang said Surma's visit took everyone by surprise, especially
China's envious, Shanghai-based top producer, BaoSteel. Zhang will
represent China at the IISI Executive Committee meeting in New

3. Zhang also reported that while the merger between AnSteel and
BenSteel was moving along, complications had arisen due to the fact
that AnSteel belonged to the National Assets Committee while
BenSteel belonged to the Liaoning Provincial Committee. The merged
company would eventually locate its headquarters in Shenyang,
between the two satellite cities, and the name of the merged entity
had yet to be determined. The merger was announced in August 2005,
to be effective within three months, but the two companies still
operated separately, and Zhang said the final merger would take even
more time.

4. According to Zhang, all steel factories in the Northeast will be
merged into a single corporation in the next few years and only four
steel producers would remain in all of China. AnSteel hopes to
cooperate with U.S. Steel in the near future to develop a joint
production venture and also hopes to develop joint projects with
German and Korean producers.

5. During his trip, Zhang was to visit Ford Motor Company in hopes
of settling an agreement to supply automobile body sheets to Ford.
Despite declining sales, Zhang stated that Ford possessed
advantages in technology and management that made it an important
for partner for AnSteel's participation in the U.S. market.

6. AnSteel's new plant in Bayuquan, Yingkou would be completed by
June 2006, according to Zhang. He said the plant is advanced in
terms of both capacity and environmental protection and estimated
the cost of environmental safeguards at 60-70 RMB per ton of steel
production. He said the environmental protection costs for the new
plant are much higher than those for the old plants in Anshan
proper. Zhang said that a senior Chinese national leader, as well
as senior representatives of the United States, German, Korean and
Japanese steel industries, would attend the ribbon cutting and
dedication ceremony for the new plant.

7. Looking at the overall development situation in the northeast,
AnSteel's expansion indicates that the central government's
much-reported move to discourage heavy polluting industries does not
entail discouraging heavy industry in the northeast. There is,
however, a real emphasis on making these industries less noxious.
In addition to the new factory's environmental equipment, on July 19
AnSteel brought online China's largest blast-furnace, combined-cycle
power plant. The plant captures blast-furnace exhaust and uses it
to drive turbines producing 300 megawatts of additional power for
the plant. AnSteel's original plan had been to build a coal-fired
plant was changed to a combined-cycle design to reduce carbon
emissions. Mitsubishi Heavy Industries provided the turbines for
the plant.


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