In a move to dominate Southeast Asia's steel industry, China's state-owned steel maker Shougang Group launched a project on Monday to build a 1.8 billion ringgit (574.25 million U.S. dollars) integrated steel mill in Malaysia through a joint venture with local steel maker Hiap Teck Venture Berhad.
The steel slab plant would be built on a 1,200-acre land in Kemaman, an industrial city in the country's East Coast economic development region that has moderate iron ore reserves.
The project, called Eastern Steel, is the largest Chinese foreign direct investment to date in Malaysia.
The steel plant is estimated to produce 1.5 million tonnes of steel slabs annually, though Eastern Steel was given a license to make five million tonnes of steel products per year.
Shougang, ranked 325 in global Fortune 500, holds 40 percent of the Eastern Steel project while Hiap Teck controls 55 percent of the stakes.
"Chinese steel industry is suffering from overcapacity and that is why we venture abroad," Hu Bin, the president of Shougang Group, told the press before the plant's groundbreaking ceremony on Monday.
"The ASEAN (Association of Southeast Asian Nations) is a huge and developing market. I think the bloc has great potentials and we are tapping into it via Malaysia," Hu said.
"We decided to invest in Malaysia because we find it economically stable," he added, pointing out that the plant is strategically located next to a deep sea port for export.
40 percent of the products at the Eastern Steel mill are expected to be shipped to neighboring ASEAN countries, especially Indonesia and Thailand, which consume 4.13 million metric tonnes of steel slabs annually.
The ASEAN heavily relies on producers in eastern Europe for steel slabs but Shougang is optimistic to dominate the Southeast Asian market.
"The investment came at the right timing. The Eastern Steel mill would be a platform for us to examine and be familiarized with ASEAN," Hu told Xinhua.
"We are confident to become the largest steel slab exporters in the region but we also need to consider the risks," he said.
Operations at the plant are expected to start mid 2013.
David Law, deputy executive chairman of Hiap Teck, said his company remains cautious of the weak steel price as pressure of expensive raw materials loom, but the scenario would not last. "By the time construction of the plant completes, the economy should rebound," he said.
Hiap Teck, founded in 1987, is one of Malaysia's largest steel pipe makers.
Shougang is China's leading steel company with an annual crude steel output of above 30 million metric tonnes and a total annual reserve of 29 billion U.S. dollars.