Steel profits squeezed, WISCO opts for wine
Suffering from low profits, a subsidiary of one of China's largest steel mills debuted in the food market, with wine and olive oil as its main business.
It seemed only a small step in Wuhan Iron and Steel (Group) Corporation's (WISCO) plan to expand into non-steel business. With 38 kinds of wine and 29 kinds of olive oil, International Economic and Trade Corporation WISCO, a WISCO subsidiary, entered the domestic food production and circulation sector.
For more profits
According to a report by the 21st Century Business Herald, WISCO aims to raise the portion of non-steel business to 30 percent by the end of the 12th Five-Year Plan.
"The profit margin of the steel business is so low that we have to do more in non-steel sectors to collect more profits," said an official of the company.
In the first 10 months of 2010, China's large and mid-sized steel producers only realized an average profit margin of 2.8 percent, according to data from the China Iron and Steel Association. Deducting investment returns, the real sales profit margin was 2.58 percent.
Common sense move
WISCO is not alone in multi-industry expansion. Sticking to the main business while seeking transformation has become conventional wisdom in the steel industry.
Tangshan Jinxi Iron Works and Steel Group, a private steel producer, also announced multi-industry development into five non-steel businesses, including real estate and finance.
"No one has restricted steel mills in the steel industry. Multi-industry development is necessary," said a high executive from the company.
Baosteel, China's No.1 steel producer, has labeled its development plan "One Plus Six." Under the plan, the company will retain steel production as its core business while expanding into multiple businesses, such as resource development, steel processing, engineering service, coal chemical and finance.
Nanjing Iron and Steel Co., Ltd, another state-owned steel mill, transformed a subsidiary into a trade and logistics firm, which brought more funds to the company.
"There exists no possibility for simple expansion in the steel sector. How do we seek new development? This is a question," said Li Xinchuang, an official with the CISA.
The low profit margin in steel production is one of the reasons for steel mills' expansion in the non-steel sector. "But every company will eventually consider multi-industry development. This is a law of history," Li added.
