Anshan Steel

Remember the reports of thousands of tons of missing copper apparently hoarded by Chinese pig farmers? Well, it seems the infamous pig farmers have come back in the media again for Round Two (this time, to recruit the steel mills to join in on raising porkers).

A story in the FT explains how, faced with falling profits but mountains of cheap government loans, the major state steel companies have desperately diversified in a bid to supplant their dwindling steel revenues by returns from elsewhere – hence, the hog-wild move! You can’t see the logical connection? Nor can I.

The article leads with Wuhan Iron & Steel, China’s fourth-largest producer, investing 30 billion yuan ($4.7 billion) over the next five years in non-steel sectors including pig, fish and organic vegetable farming as well as logistics and chemicals. (Ed note: We’ll assume the organic vegetable farming will occur offsite from said steel production facilities…but you know what happens when one assumes.)

Apparently, Wuhan’s pig farm has quickly become the talk of the industry. And yet Wuhan does not stand alone. In fact, many of China’s powerful steel groups – which account for about 8 percent of China’s gross domestic product – have also quietly expanded beyond their core business (perhaps for a piece of the bacon). There appears no hiding the fact that falling sales and massive overcapacity have hit steel firms’ profits hard as demand from the construction industry has collapsed.

Baosteel Group, the world’s third-largest steelmaker, made half of its net profit of 18.7 billion yuan ($3 billion) last year from non-steel businesses. Baosteel diversified early compared to rivals and already has extensive non-steel subsidiaries that span a wide range of industries, from real estate to telecommunications and manufacturing. We have yet to confirm if Baosteel has any interests in swine operations.

Not Alone in the Pigpen

Other mills have followed their lead. Ansteel, one of the biggest steelmakers in Hebei province, has moved into the coal sector while Maanshan, a large mill in central China, has invested millions in wheel and axle manufacturing. The trend will likely continue as the sector lost money in the last quarter and will likely lose more in the first quarter of this year. In January, China’s 80 biggest steel mills collectively saw losses of 2.3 billion yuan ($360 million) on total revenue of 260 billion yuan ($41 billion).

Let’s hope steel producers hire the appropriate skills to manage their new acquisitions. Production processes like hot, pickled and annealed has some merits for pig processing, but hot stamped and galvanized remain challenging.

On the other hand, perhaps the Chinese can develop the nascent pig racing industry: