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Formosa Plastics Group to Invite Japan's JFE to Buy 10% in Vietnam Steel Mill

2014/09/02 | By Steve Chuang

With its invested steel company, Formosa Ha Tinh Steel Corporation, to start up its first blast furnace in Vietnam at the end of 2015, Taiwan-based Formosa Plastics Group, a conglomerate of plastics, steels and petrochemicals, plans to invite Japan's JFE Steel Corporation to take 10% stake in the steel mill to build closer strategic partnership with the Japanese stainless steel supplier.

With a plant for steel billets, steel coils and wire rods, Formosa Ha Tinh Steel is established jointly by the group's four flagship companies, namely Formosa Plastics Corp., Nan Ya Plastic Corp., Formosa Chemical & Fibre Corp. and Formosa Petrochemical Corp., and other partners, costing over US$6 billion in investment so far. Mainly due to the anti-China riots this May, the start-up of the steelmaker's first blast furnace has been deferred from May 2015 to the end of the year.

Formosa Plastics Group has ulterior motive to sell a 10% stake to JFE, mainly to build closer  partnership to attempt technological transfer from the Japanese firm which is known for cutting-edge manufacture of 400 series stainless steels, a realistic goal considering the two parties have cooperated on FPG's  invested steel companies in China, namely Fujian Fuxin Special Steel Co., Ltd.

Also dedicated to manufacturing  higher-end products of 400 series stainless steel and targeting the domestic market in China, Fuxin Special Steel has just become operational this year, with technological support from JFE. Its planned yearly output reaches 720,000 tonnes of crude steel, with annual turnover of about RMB20 billion (US$3.33 billion).

Formosa Plastics Group indicates that nickel is key for stainless steel production, but price fluctuations prompt Fuxin Special Steel to focus on production of 400 series stainless steel of chrome, titanium and niobium through cooperation with JFE to hedge operational risks and secure profits.

Among globally-leading makers of stainless steel, JFE is known for applying chrome, instead of  nickel, to make stainless steel with lower cost. The firm's hot-rolled sheets of chrome-based stainless steel are noted for micro-thickness of only 1.4mm, hence motivating Fuxin Special Steel to cooperate with the Japanese firm to better explore the Chinese market, where few can supply sub-3mm steel sheets.

Formosa Plastics Group believes  Fuxin Special Steel and Formosa Ha Tinh Steel will likely contribute NT$200 billion (US$6.67 billion) to the group's annual turnover.

The Taiwan-based group has also worked aggressively to secure stable supply of raw materials to sustain its steel business by joining iron ore exploration and development projects in Brazil, Australia and Africa. The group's latest move is an agreement with Fortescue Metals Group Limited, Australia's third-biggest iron ore exporter, on buying part of ownership of the FMG Iron Bridge project for US$1.15 billion. (SC)