"ArcelorMittal exports 200,000t auto sheet to China every year, most of which are delivered to joint ventures in China like Das Auto, GM, and Ford. Starting from this October, all these products will transfer to Valin ArcelorMittal Automotive Steel (VAMA).” Since this year, Vice General Manager of Valin Steel Wang Jun shoulders another responsibility—Chairman of VAMA, in charge of establishment of the joint venture.
VAMA is a joint venture of Valin and ArcelorMittal to produce auto sheet. The establishment of VAMA represents the actual action of Valin and ArcelorMittal after replacing cooperation pattern. In the past, ArcelorMittal didn’t get profits as expected by equity investment in Valin Steel. The two companies now put emphasis on the profitable high-level auto sheet, which will bring much impact to Chinese domestic auto sheet market dominated by Baosteel, Wuhan Iron and Steel and Ansteel.
Squeeze into high level auto sheet market
VAMA, one of a few new investment projects of Valin and ArcelorMittal after the outbreak of the financial crisis, totals 5.2 billion yuan with Valin 51% share and ArcelorMittal 49% share.
Currently, the factory is under construction and estimated to put into use in June, 2014 with an annual production of 1.5 million tons¬—1 million tons for continuous acid-washing and cold mill and 0.5 million tons for continuous hot dip galvanizing.
The reason to invest in this project is because auto sheet is one of a few steel products having profits in Chinese iron and steel market. According to statistics of all big steel enterprises, the gross rate of cold rolling products like auto sheet is generally higher than other products.
“The annual demands on auto sheet will grow 1-1.5 million tons per year. Besides local supply from Baosteel, Guangzhou Iron & Steel, Ansteel, and Wuhan Iron and Steel, etc., there are about 1-1.5 million tons exports from Japan, South Korea and Europe. Hence, we believe there is still much space for us,” said by SanjaySharma, General Manager of ArcelorMittal and CEO of VAMA. ArcelorMittal takes up 20% in global auto sheet market and 35% for high level auto sheet market, he says.
As a result, the two companies decide to turn into a joint venture in stead of equity cooperation by taking advantage of ArcelorMittal’s technology in high-level auto sheet sector and Valin’s supply of hot milling plate and experience in Chinese market.
“We choose Hulan as the new site of VAMA to carter for Chinese auto manufacturers’ demands. In future, a lot of growth of auto production comes from Middle and West of China,” Wang Jun points out. Now, there are lots of new auto projects in Hunan, for example, the new production bases for Shanghai Das Auto, BJC, and GAC.
Valin stops loss in Q2
The joint venture is regarded a new hope after the two companies that have encountered twists and turns in cooperation readjust cooperative strategy.
When Valin Steel suffers huge loses, both parties adjust the cooperation pattern. ArcelorMittal reduces shares in Valin Steel and increases investment in the joint venture with one premier condition that the construction of the joint venture is based on the milestones of technical transfer progress.
Now ArcelorMittal has completed the first stage share reduction and hold 25% in Valin Steel. Next month, when production facility is put in place and installed, ArcelorMittal will further reduce share to 20% and then to 10.07% till the operation of the joint venture.
As for Valin Steel, the most urgent is to reverse loss. Last year, the company lost 3.254 billion yuan.
“By reducing costs, the company sees slight recovery in Q2, 70% less than last year, but it is sill in deficit,” said by Wang Jun. it is still possible to reverse the loss this year.
It is learnt that in Q1, Valin Steel cut down costs of steel at around 100 yuan per ton. The target is to cut down 240-260 yuan per ton.
