In the current steel industry, a decline is still evident. Despite various measures taken by the State Council to address overcapacity in steel mills, the domestic steel market continues to show a trend of "shock and decline." Since 2010, the steel sector has been struggling under the burden of excess capacity, barely maintaining profitability. In this weak market environment, many listed steel companies have turned to expanding their "non-steel businesses" as a way to find new profit sources.
Leading domestic steel enterprises such as Baosteel, Wuhan Iron & Steel, and Shagang Steel have set ambitious goals for their non-steel industries, aiming for more than 30% of group revenue from these sectors during the 12th Five-Year Plan period. This diversification strategy not only helps offset losses but also provides a buffer against market volatility.
Beyond profit considerations, the assets accumulated through non-steel operations have also driven steel companies to diversify. Selling off non-core related assets has allowed companies like Angang, Maanshan Iron & Steel, Valin Steel, and Shandong Iron & Steel to quickly turn around their financial performance. However, with the State-owned Assets Supervision and Administration Commission (SASAC) urging central enterprises to focus on their core business and limit non-strategic investments, the future of these ventures remains uncertain.
Many steel companies are seeking ways out through diversified development. According to 2013 performance reports, several listed steel companies, including Shougang and Jiuquan, faced losses, while others relied on asset sales and government subsidies to remain profitable. Industry experts suggest that the outlook for 2014 remains bleak.
To weather the harsh conditions, steel firms have increasingly turned to non-steel industries. The 32 A-share steel companies have all ventured into non-core businesses, typically focusing on minerals, logistics, machinery, trade, and real estate. Logistics and transportation have become particularly popular, with companies like Wugang, Hualing, and Nangang establishing modern logistics and port operations.
In addition to logistics, financial services and real estate have also become key areas of diversification. For example, Valin Group's financial company began operations in 2006, engaging in asset and liability management. Real estate ventures, such as Nanjing Sanjin Real Estate Development Co., Ltd., were established early on and have successfully developed multiple projects.
Industry analysts note that steel companies often use local advantages to invest in real estate, leveraging their capital. While financial services may seem unrelated to steel production, they play an important role in supporting the company’s capital chain and future growth.
Major steel companies have clearly outlined their non-steel development strategies. Baosteel, Wuhan Iron & Steel, and Shagang have all targeted significant portions of their revenue from non-core businesses. Baosteel, for instance, aims for its information and e-commerce divisions to account for 30% of parent company revenue by 2018.
Shagang, another major player, has invested heavily in logistics, with ambitions to reach 200 billion yuan in sales and gain international recognition. Meanwhile, Wuhan Iron & Steel has expanded into food production, logistics, and urban service industries, showcasing a broader diversification approach.
Experts emphasize that diversified development should align with the company’s industrial chain to avoid resource wastage. Some companies, like Chongqing Iron & Steel, believe that if non-core businesses can generate value, they should be pursued.
However, SASAC’s emphasis on strengthening core businesses and limiting non-primary investments poses challenges. While this policy may improve overall market efficiency, it could hinder some steel companies facing difficult times.
For companies in deep trouble, selling non-core assets can provide a quick fix, helping to stabilize finances and avoid delisting risks. Companies like Anshan Steel and Maanshan Iron & Steel have successfully used this strategy to turn profits.
Non-core assets can act as a lifeline, offering short-term gains and helping companies navigate declining performance. However, experts caution that long-term decisions should be made carefully, ensuring sustainable growth rather than temporary fixes.
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