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Hesteel considering new plant locations as environmental regulations bite

Hesteel Co. Ltd. is considering diversifying from its home province Hebei, China, and setting up new steel plants outside the Beijing-Tianjin-Hebei region, as tight regulations over steel producers in the area are expected to be maintained, Finance Director Chang Guangshen said during a May 15 investor webcast.

Curtailment of production resulting from environmental regulations was the main reason for the company's 43% year-on-year drop in net profit for the first quarter, and Chang pointed to environmental regulations as the company's main operation risk.

"The company's home province Hebei suffers from severe smog pollution. Curtailment of production resulting from environmental controls is becoming more frequent. … Production suspension is the new normal for us," Chang said.

As Beijing continues to tighten environmental regulations, Chang expects production difficulties as well as costs to increase accordingly.

"The winter suspension not only reduced production and profits but also increased fixed and variable costs."

Chang said that while the company is considering setting up new plants outside the Beijing-Tianjin-Hebei region, he added that there is no concrete plan to do so.

China ordered production curbs across 28 steel-producing cities surrounding the Beijing-Tianjin-Hebei region in September 2017, which was estimated to result in production losses of 30% to 50% crude steel-making capacity over November 2017 to March 2018.

Meanwhile, the company is open to diversify into other sectors in the face of restrictions in the iron and steel sector, according to Chang. When asked about potential options, Chang said the company is not considering overseas expansion or large-scale merger.

"The company will develop strategic planning that is in line with government policy and economy," Chang added.