Guangzhou Iron & Steel Enterprises Holdings Monday signed an agreement with Japan-based JFE Steel to set up a US$1 billion joint venture.

The joint venture, Guangzhou JFE Steel Sheet Company, will produce hot-dip galvanized steel sheets primarily for the automobile industry, some for the electric appliance industry and construction applications.

JFE will make up for 51 per cent of the capital input, with the remaining 49 per cent coming from Guangzhou Iron & Steel.

Investment for the initial stage of the project is US$200 million.

The project is set to break ground in early 2004 and start operations in April, 2006. The initial annual yield is set at 400,000 tons.

"The project will help satisfy the rapidly intensifying domestic market demand and the enterprise will at the same time benefit handsomely from the promising bonanza," noted Yuan Jinxi, chairman of Guangzhou Iron & Steel.

Domestic market demand for hot-dip galvanized steel sheets has been rapidly intensifying in the past few years in tandem with mushrooming auto projects and household appliance projects across the nation. But such steel sheets are mainly imported from Japan and South Korea.

Official sources say that China produced 3.10 million automobiles including 1.88 million sedans last year and the nation is expected to turn out 6.10 million automobiles in 2005.

In Guangzhou alone, Japan's Honda, Nissan and Isuzu have all set up automobile joint ventures; and Toyota is reported to be planning to set up a joint venture manufacturing Camery sedans in the near future.

The Pearl River Delta region has also been one of the nation's key bases manufacturing household appliances.

The hot-dip galvanized steel sheets from the new joint venture are also expected for the markets in Southeast Asia.

JFE Steel, founded in April from the Kawasaki Steel and NKK, is a top supplier of high-value-added steel products in Japan. Its annual iron and steel production reaches 27 million tons.

The new venture is JFE's first major step into China, whose appetite for high-grade steel has boosted profits for the Japanese steel industry. The deal would also help protect JFE from curbs on imports into China.

JFE rival Nippon Steel, the world's second largest steel maker, is in talks with China's Baoshan Iron and Steel and is expected to unveil a similar agreement to produce auto steel sheets later this year.

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