(Editor’s Note: These two projects have become exemplary cases of investment by central state-owned enterprises. Their key features are as follows: First, the raw materials come from overseas, with iron ore primarily sourced from Australia; second, the target markets for their products are Southeast and South Asia; third, intense competition among China’s most influential steel companies, all operating in a highly homogeneous manner; fourth, the total investment for each project is in the order of 60 billion yuan; fifth, both projects received approval from the National Development and Reform Commission simultaneously in 2012; and sixth, by the time these projects were officially launched, structural shifts had already begun to take place in both the industry and the market.)

The Baosteel Zhanjiang Iron and Steel project, which is set to ignite its blast furnace on September 25, has attracted considerable attention. Meanwhile, the Wugang Fangchenggang project, located roughly 200 kilometers away, has also drawn much external interest following the "breakup" between Wugang Group and Liugang Group.

The Baosteel Zhanjiang Steel Project and the Wugang Fangchenggang Project both received “green lights” from the National Development and Reform Commission in 2012. Today, the former has already entered the blast furnace ignition phase, while the latter is proceeding at a relatively slower pace.

Industry insiders point out that the Baosteel Zhanjiang Steel and the Wugang Fangchenggang projects have similar radii of influence, with overlapping product structures and target markets, making competition virtually inevitable. Moreover, the Southeast Asian and South Asian markets—both of which these companies are eyeing—are undergoing significant changes. In addition to competing with Japanese and Korean steel giants that have already established factories in Southeast Asia, these companies will also face trade frictions with Southeast Asian nations themselves. As a result, the outlook is far from optimistic.

Wugang’s Fangchenggang hosts a one-person show.

Baosteel Zhanjiang Steel is about to enter the production trial operation phase. So, how is the Wugang Fangchenggang project progressing?

According to what our reporter has learned, the Wugang Fangchenggang project and the Baosteel Zhanjiang project previously followed almost the same timeline: both initiated preliminary work in 2008 and simultaneously received approval from the National Development and Reform Commission in May 2012. According to available data, the total investment in the Wugang Fangchenggang project will reach 63.99 billion yuan, and the project will be constructed by Guangxi Iron and Steel Group Co., Ltd., a joint venture established with funding from Wugang and Guangxi.

The cold-rolling project at the iron and steel base of the Fangchenggang Project began construction in July 2013. This June, the 2030mm cold-rolling production line successfully completed its trial run, with an annual production capacity of 2.1 million tons. However, the detailed schedule for the blast furnace ignition and other related milestones has not been disclosed to the public. “The basic construction of the cold-rolling project within the Fangchenggang Project is nearly complete. The 2030mm cold-rolling production line has successfully undergone trial runs, but it’s still unclear when the main project—the blast furnace—will be ignited,” Sun Jing, head of the Publicity Department of Wuhan Iron and Steel Group, told a reporter from the Daily Economic News.

Is the Fangchenggang project behind schedule? A source within Wuhan Iron and Steel Group said, “The group has its own plan. We started construction later on—just like garment production: different production processes are involved. Some processes, from cotton to spinning to cutting and sewing, are carried out sequentially. But for us, we first complete the cutting stage. Once the cutting stage is finished, we move forward step by step.”

Meanwhile, to the market’s surprise, at a critical juncture in the Fangchenggang project, Liugang Group—previously a partner of Wugang Group—chose to withdraw. On September 9, Liugang Shares announced that Liugang Group was exiting the Guangxi Iron and Steel Group, signaling that the Fangchenggang project would henceforth be solely led by Wugang Group.

The “cake” has likely already been almost entirely divided up.

The Zhanjiang Iron and Steel Project and the Fangchenggang Project both hold extraordinary strategic significance for the two major state-owned enterprises.

In its core steel business, Baosteel Group is implementing a “two corners and one side” strategic layout—namely, two major strategic pillars: the “Yangtze River Delta,” centered on Baosteel Shares, and the “Pearl River Delta,” centered on the Zhanjiang base. At the same time, Baosteel Group is fully leveraging the resource advantages of Bayi Steel in the Xinjiang region to consolidate its market position in the northwest. The deployment of the Fangchenggang project represents Wuhan Iron and Steel Group’s strategic plan to accelerate its shift from an inland to a coastal orientation. Wuhan Iron and Steel Group aims to take full advantage of Fangchenggang’s geographical location, reduce overseas iron ore transportation costs, and further expand its reach into the southwest Chinese market and Southeast Asian markets.

When the map is unfolded, it becomes clear that both the Zhanjiang Iron and Steel Project and the Fangchenggang Project are located in the Beibu Gulf, only about 200 kilometers apart. Aside from their proximity, the two project sites also share a broadly similar product mix. According to the approval document issued by the National Development and Reform Commission, the Zhanjiang Project focuses primarily on producing plate steel for industries such as automobiles, home appliances, machinery, and construction in South China, as well as marine plates, pipeline steel, and high-quality carbon structural steel. In contrast, the Fangchenggang Iron and Steel Base project mainly produces mid-to-high-end plate products—including hot-rolled thin sheets, galvanized sheets, and color-coated sheets—tailored to meet the needs of automobile and home appliance manufacturers in Guangxi and Southeast Asia.

The overlap in distance, product positioning, and market regions means that the two steel giants will inevitably find themselves “facing each other” in the market in the future.

“Competition between the Zhanjiang project and the Fangchenggang project is certainly inevitable, and in the future, there may be a greater focus on specific product segments,” said an insider from Wugang Group. Meanwhile, a staff member from the securities department of Baosteel Shares told reporters that, for the Fangchenggang project, the domestic market as a whole currently faces oversupply, and competitors are not limited to just the Fangchenggang project itself.

The statement made by Baosteel Shares staff is indeed well-founded. Researcher Xu Liying pointed out that during the eight years since these two projects were approved for construction, other steel companies have gradually entered the high-end plate market, and brands such as Ansteel, Tai Steel, and Baogang have already captured significant market shares in these product categories. “The ‘cake’ envisioned for the Fangchenggang project has probably already been pretty much divided up.”

Moreover, in addition to the domestic markets in South China and Southwest China, the Southeast Asian and South Asian markets—targeted by the two previous projects—are now facing the awkward situation of being almost entirely divided up. “When we designed the Fangchenggang project back then, one of the main reasons was our focus on the Southeast Asian market,” said analyst Wang Guoqing. “As China’s steel exports to Southeast Asia have surged dramatically, trade frictions involving Chinese steel exports to the region have shown a clear upward trend in recent years.”

In addition to the increasingly frequent trade frictions that are curbing China’s steel exports, the overseas steel companies’ strategic presence in Southeast and South Asia also poses significant competition for Wugang and Baosteel as they seek to expand their markets through coastal projects. “In South Asia—especially in India, a market with great potential—South Korea’s POSCO, Japan’s Nippon Steel, and India’s Tata Group have all been increasingly choosing to set up factories and make investments locally, establishing a relatively well-developed presence. As a result, it will be quite challenging for Baosteel and Wugang to tap into this market in the future,” said Wang Guoqing.