VZCZCXRO0255
PP RUEHCN RUEHGH RUEHVC
DE RUEHSH #0152 2150846
ZNR UUUUU ZZH
P 030846Z AUG 07
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC PRIORITY 8150
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SHENYANG 000152 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EFIN PGOV PREL CH
SUBJECT: ANGANG STEEL HOPES TO GROW AT HOME AND ABROAD 
 
 
¶1. Summary: Zhang Xiaogang, Chairman of Anshan Iron and Steel 
Corporation (AnSteel), recently discussed an impending meeting with 
John Surma, President of International Iron and Steel Institute and 
potential cooperation with U.S. Steel Executive Committee of the 
IISI in New York on July 12 and 13, 2007 Executive Committee of the 
IISI in New York on July 12 and 13, 2007, and  what appears to be a 
nearly final deal with Ford Motor Company for AnSteel to provide 
sheet steel for Ford's auto body panels.  Zhang also reported that 
the merger of AnSteel with Benxi Iron and Steel (BenSteel) was 
moving along, albeit slowly, and said that plans from the central 
government called for the merged company to eventually become the 
sole remaining steel company in northeast China.  End Summary. 
 
¶2. Before getting his visa for a previously unplanned, mid-July trip 
to the United States, Zhang Xiaogang, Chairman of AnSteel and new 
President of China Iron and Steel Association, told us how he had 
suddenly been invited by John Surma, President of International Iron 
and Steel Institute (IISI), to attend a meeting of the Executive 
Committee of the IISI in New York.  Earlier in the month, Surma had 
unexpectedly visited AnSteel, China's second largest steel producer, 
specifically to invite Zhang to the meeting, and to encourage 
greater cooperation between Chinese and American steel producers. 
Zhang said Surma's visit took everyone by surprise, especially 
China's envious, Shanghai-based top producer, BaoSteel.  Zhang will 
represent China at the IISI Executive Committee meeting in New 
York. 
 
¶3. Zhang also reported that while the merger between AnSteel and 
BenSteel was moving along, complications had arisen due to the fact 
that AnSteel belonged to the National Assets Committee while 
BenSteel belonged to the Liaoning Provincial Committee.  The merged 
company would eventually locate its headquarters in Shenyang, 
between the two satellite cities, and the name of the merged entity 
had yet to be determined.  The merger was announced in August 2005, 
to be effective within three months, but the two companies still 
operated separately, and Zhang said the final merger would take even 
more time. 
 
¶4. According to Zhang, all steel factories in the Northeast will be 
merged into a single corporation in the next few years and only four 
steel producers would remain in all of China.  AnSteel hopes to 
cooperate with U.S. Steel in the near future to develop a joint 
production venture and also hopes to develop joint projects with 
German and Korean producers. 
 
¶5. During his trip, Zhang was to visit Ford Motor Company in hopes 
of settling an agreement to supply automobile body sheets to Ford. 
Despite declining sales, Zhang stated that Ford possessed 
advantages in technology and management that made it an important 
for partner for AnSteel's participation in the U.S. market. 
 
¶6. AnSteel's new plant in Bayuquan, Yingkou would be completed by 
June 2006, according to Zhang.  He said the plant is advanced in 
terms of both capacity and environmental protection and estimated 
the cost of environmental safeguards at 60-70 RMB per ton of steel 
production.  He said the environmental protection costs for the new 
plant are much higher than those for the old plants in Anshan 
proper.  Zhang said that a senior Chinese national leader, as well 
as senior representatives of the United States, German, Korean and 
Japanese steel industries, would attend the ribbon cutting and 
dedication ceremony for the new plant. 
 
¶7.  Looking at the overall development situation in the northeast, 
AnSteel's expansion indicates that the central government's 
much-reported move to discourage heavy polluting industries does not 
entail discouraging heavy industry in the northeast.  There is, 
however, a real emphasis on making these industries less noxious. 
In addition to the new factory's environmental equipment, on July 19 
AnSteel brought online China's largest blast-furnace, combined-cycle 
power plant.  The plant captures blast-furnace exhaust and uses it 
to drive turbines producing 300 megawatts of additional power for 
the plant.  AnSteel's original plan had been to build a coal-fired 
plant was changed to a combined-cycle design to reduce carbon 
emissions.  Mitsubishi Heavy Industries provided the turbines for 
the plant. 
 
 
 
 
Wickman