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Baoshan Steel to Invest $1.3 Billion in Natural Gas Pipeline

Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, will invest 8 billion yuan ($1.3 billion) in a natural-gas pipeline as overcapacity and higher raw material costs squeeze its profit margins for steel.

The company will own about 13 percent of China National Petroleum Corp.’s third pipeline project, which will link the Xinjiang region in the nation’s west with Fujian province in the east, according to a statement to the Shanghai stock exchange yesterday. China National Petroleum, the parent of PetroChina Co., is a key client of Baoshan.

Baoshan, facing sluggish demand from automakers and builders, is looking to diversify to generate profits. The Shanghai-based company yesterday reported a 4.9 percent drop in the third-quarter profit, and said today earnings won’t improve in the fourth quarter as it provides for an unprofitable steel unit.

“Investing in a gas pipeline is a hot opportunity and such opportunities weren’t available before,” General Manager Ma Guoqiang told investors in an online meeting today. Baoshan expects a 10 percent annual return from the pipeline, he said.

Baoshan shares added as much as 0.7 percent to 4.61 yuan today in Shanghai and traded at 4.60 yuan as of 10:58 a.m. local time, beating a 0.2 percent gain in the Shanghai Composite Index.

Profit Falls

Third-quarter profit declined to 1.18 billion yuan, beating the 863 million yuan mean estimate of three analysts surveyed by Bloomberg News. Baoshan received part of the proceeds from a land sale in Wusong in the northeastern outskirt of Shanghai during the third quarter, Ma said today.

Baoshan plans to sell its Corex plant in Luojing near Shanghai to parent Baosteel Group Corp. for 2.73 billion yuan, after suspending production there in September as demand fell for slabs used to make ships and bridges, the company said yesterday. The plant, with a combined steel capacity of 3 million tons annually, will be moved to Xinjiang, it said.

Baoshan will also buy a 71.8 percent stake in a steel project in Zhanjiang in southern China’s Guangdong province from the government for 5 billion yuan, according to a separate statement yesterday.

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