WUHAN- China's steelmakers -- battling to stop their profit margins from further decreasing -- are diversifying into sectors unrelated to steel, including wine production, robot manufacturing, and real estate.
While steel production in China has increased over the years, steelmakers' profits have slumped. Last year, the average profit margin of the country's steelmakers was 2.91 percent, far below that of the industrial sector which was 6 percent.
"There are two reasons for the low profits in steel industry. On one hand, overcapacity is a big problem, on the other, prices of iron ores have been on the rise along with steel production costs," said Deng Qilin, general manager of Wuhan Iron and Steel (Group) Corporation (WISCO), a leading Chinese steel firm.
Last December, WISCO exhibited a total of 38 different kinds of wine and 29 kinds of olive oil at the 19th China International Food Procurement Fair (CIFPF) in Wuhan, capital of central China's Hubei province.
WISCO only entered the food market last year, but it is no newcomer to investing outside of the steel sector. The company's non-steel business profit of 1.8 billion yuan ($277 million) in 2010 accounted for more than a half of company's total profits.
Even though the returns on the company's investments outside its core business are high, the amount invested is still relatively small.
"We aim to raise the portion of our non-steel business to 30 percent by the end of China's 12th Five-Year Plan Period (2011-2015)," said Gao Bo, deputy director of the planning and development department of WISCO.
WISCO is not the only company diversifying into areas unrelated to steel production.
"It is impossible for those steel giants to make money through raising production. Expanding into the non-steel business is a better choice," said Yang Jianlong, deputy chief of the industrial economy department with the Development Research Center of the State Council.
Shanghai Baosteel Group Corporation (Baosteel), the largest listed steel company in China, is also eyeing diversifying further into other sectors.
The Shanghai-based steel maker labeled its development plan "One Plus Six," as the company aims to keep steel production as its core business while seeking to expand into other sectors including resource development, the extended processing based on rolled steel, technological services, finance, engineering services and the coal-based chemical industry.
Another steel giant, Shougang Group, gained half of its profit from sectors outside that of steel as early as a decade ago. The company has investments in the electronics, mining, machinery, and auto parts industries.
Moreover, the present income from Shougang Group's electronics industry and mechanical and electronics trade recently reached 13.1 billion yuan,doubling that of five years ago.
