In 2011, despite of the slowdown of demand growth, the rising costs and overcapacity in the iron and steel industry on the whole, Baosteel remained in the leading position in the market of iron and steel, its major market, presented sound overall performance and good development prospect in various industries in a well-defined industrial structure, and was becoming the powerhouse for further development of the whole group and a strong balancing force amid fluctuations of the iron and steel industry. In this year, Baosteel achieved an annual iron output of 40.09 million tons and an annual steel output of 44.27 million tons, and realized gross revenue of RMB316.245 billion and a profit of RMB18.151 billion.

On May 22, 2011, Baosteel Zhanjiang Steel Co. Ltd was founded in Zhanjiang,Guangdong Province, and on August 22, 2011, agreements were signed in Guangzhou for Baosteel’s reorganization of Shaoguan Iron & Steel Co. Ltd (Shaoguan Steel) and Guangzhou Iron & Steel Enterprises Group (Guangzhou Steel), marking essential progress of reorganization of the iron and steel industry in Guangdong and laying a preliminary foundation for the iron & steel project in Zhanjiang. Equity transfer of Shaoguan Steel was approved by the State-owned Assets Supervision and Administration Commission of theState Council at the end of 2011. Baosteel would hold 51% of the shares of Shaoguan Steel. The joint venture of Baosteel and Guangzhou Steel, Guangzhou Steel Sheets Co. Ltd was founded at the end of 2011. Thesereorganization projects laid a solid foundation for the commencement of iron & steel projects in Zhanjiang and the Company’s industrial layout and optimization of its product structure in the Zhujiang Delta.

In 2011, Baosteel carried out reorganization and preliminary integration of Baosteel Desheng Stainless Steel Co., Ltd located in the coastal area of southeast China, made up its deficits and achieved a profit of RMB213 million, which contributed to the optimization of Baosteel’s stainless steel assets andindustrial layout.

Baicheng Iron & Steel Base of Bayi Iron & Steel Co., Ltd in Southern Xinjiang

Authorized by the National Development and Reform Commission, the Government of Xinjiang Uygur Autonomous Region in August 2011 officially approved the Baicheng Base project. Making use of the ore and coke resources in Xinjiang, the project would have a capacity of 3 million tons with desulfurization facilities to reduce SO₂ emission. The project was under construction and would be completed and put into production in 2012.

Meishan Steel 1420 Cold Rolling Project

Meishan 1420 is a national demonstration project for domestically developed and owned large metallurgical equipment,a key project of Nanjing. It offers strong support for independent innovation of Baosteel and an import approach to improve its competitiveness and foster its innovative system.All processes including R&D, design, manufacturing, debugging and operation and all components of the units including techniques, machinery, electric equipment, instruments and the computer system are domestically developed and manufactured, with 70% in value of the whole project being domestically-owned. The project includes eight units for eight different processes such as acid rolling, continuous annealing, electrotinning, hot galvanizing, hot-dip aluminizing, and hot-dip al-zinc galvanizing, extending the Meishan Steel’s final product varieties from the traditional hot rolled plate coil to plates coated with tin, zinc, and al-zinc, achieving higher value-added. The project not only helps Baosteel achieve essential progress in independent development and ownership of large equipment and in project mechanism, operational organization, risk control and talent training, but also brings the domestic equipment manufacturing to a higher level.

Phase II of the Oriented Silicon Steel Project of Baosteel Co., Ltd

The project commenced in March 2010 and was put into operation in November 2011. With a design annual capacity of 100,000 tons, it consists of a pre-rolling unit, a silicon steel finishing unit and other equipment. Baosteel independently integrated the techniques and technologies of the project, and the duration of the project was 5 months shorter than Phase I. With this project put into operation, Baosteel seen further improved productivity, product quality and product structure of in the field of oriented silicon steel, and higher proportions of high-level oriented silicon steel and laser-inscribed products, enabling it to better satisfy the demand of Chinese power transmission and transformation industry for oriented silicon steel.

Wuhan Can Making Project of Baosteel Metal Co., Ltd.

The project is jointly invested by Baosteel Metal Co., Ltd. and Yinghe International Co., Ltd, an enterprise that mainly supplies two-piece aluminum cans for famous beverage enterprises such as JDB, Coca Cola, Pepsi, and Tsingtao Beer with a capacity of 1,400 cans/minute, or 480, 000,000 cans/year. Officially founded in November 2011, Wuhan Baosteel Can Making Co., Ltd. is the fifth domestic twopiece can maker under Baosteel following those in Shanghai, Hebei, Chengdu and Foshan.

1x135MW Residue Energy Power Generation Project of Ningbo Steel

Ningbo Steel constructed a 235MW steam turbo generator unit supplemented by a 400 ton/hour gas-fired boiler and other auxiliary facilities to improve its utilization of residue energy and ensure efficient energy recycling and save energy and reduce emission to the largest extent. The project is fueled mainly by surplus gas from blast furnaces of Ningbo Steel. The project is completed and put into operation in September 2011, and with a designed annual capacity of 660,000,000 kWh, it saves 210,000tons of standard coal per year.

Haimen Steel Structure Project of Baosteel Engineering

To make use of Baosteel’s technological and management advantages and the favorable shipping conditions on the Yangtze River of Haimen, and to build a professional manufacturing enterprise with the core concept of “digital steel structure”, Baosteel Engineering invested RMB720 million in a heavy high-end steel project with an annual capacity of 150,000 tons. The project was commenced on January 26 and completed eleven months later on December 23, 2011, achieving the goal of “commencement, completion and operation in the same year” and setting a new record of construction speed. After completion of the project, Baosteel Steel Structure (Jiangsu) Co., Ltd became a professional steel structure manufacturer with the largest individual capacity and the highest automation level of the industry in China. The company would rely on the high-performance steel of Baosteel as well as its strong design, R&D, contracting and information-based management abilities and the geographic advantage of Haimen to provide users with highly cost-efficient and all-round steel structure solutions.

Industrialization of Comprehensive Utilization of Iron Oxide Red of Baosteel Development

Magnetic material, as a medium for electromagnetic conduction extensively used in communications, information, auto electronics, green energy and other sectors, is an important basic functional material for various modern industries. Manganese-zinc soft magnetic ferrite produced by Baosteel Magnetic Co., Ltd. under Baosteel Development is the most widely-used magnetic material. After a decade of exploration and development, the company has formed a complete industrial chain in terms of utilization of steel by-products and renewable resources and become an important support for the recycling economy of Baosteel. The project, covering an area of 9.3 hectares in Haimen of Jiangsu Provinces, would be built in two phases to produce high- and medium- level magnetic materials. The designed annual capacity would be 50,000 tons of manganese-zinc soft magnetic ferrite.

Technological Innovation System Construction

Centering on the Plan for Technological Innovation System Construction, Baosteel focused on ten tasks for its system construction in 2011, improved its innovation system structure, and further optimized the operation mechanism. To create a highlevel R&D platform, Baosteel carried out resource integration for its R&D systems with the Baosteel Research Institute as the core, prepared the plan for innovation system optimization and identified the management status of Baosteel Research Institute and technology centers. Moreover, characteristic and competitive innovation systems were under construction in engineering technology and other industrial sections to support the industrial chain.

Main Innovation Achievements

1. Baosteel adhered to the strategy of technology leadership, carried out continuous innovation of high-end products and R&D of core technologies, and constantly improved its market competitiveness. It took the lead in applying Q&P technology for industrial production of the QP-steel, the thirdgeneration advanced high-strength steel. It achieved mass production of B27R085, the top-grade 0.27mm oriented silicon steel, with world-class performance. It mastered the essential technology for production of nickel-base alloy oil casing with a full range of steel types and specifications. It achieved mass supply of high corrosion resistant steel S450EW for railway vehicles, making Baosteel the first Chinese developer and manufacturer of the third-generation corrosion resistant steel for railway vehicles. It made remarkable progress in new technologies such as the third-generation oxide metallurgy and the third-generation TMCP; environment-friendly technologies such as industrialization of thin strip continuous casting and hot production of slag wool were put into industrial trial.

2. With industrial collaboration, Baosteel made technological breakthroughs in multiple fields. Its engineering technology section accelerated the industrialization of R&D results for special equipment and technology, and the LF complete equipment technology, high-temperature smoke waste heat recycling equipment, and NDT equipment successfully achieved industrial application; its intensive metal processing focused on development of products and technology including high-performance steel thread cutting and reducing the thickness of DI materials for can making; breakthrough was made in R&D of highperformance steel thread cutting, new progress was achieved in reducing the weight of two-piece can and the Φ0.115mm cut thread was developed; DI material for steel can was completely shifted from 0.225mm to 0.220mm; emerging industrial projects such as the demonstration project of “using exhaust gases from steel factories to produce fuel ethanol” were launched. Production services achieved important progress in use of resource: after years of R&D, Baosteel mastered the core technology for industrialization of super high purity iron oxide and erected China’s first medium-capacity trial production line with an annual capacity of 1,000tons of iron red, breaking the technological barriers such as JFE for iron oxide producers.

Technical Trade Cases

As a state-of-the-art and environment-friendly slag treatment technology that had been developed by Baosteel after 10 years of incessant exploration, BSSF not only resolved the problem of environment pollution in slag treatment but also worked out a solution to the problem of recovery & recycling of slag resources. This technology had been transferred to steel plants both at home and abroad such as Ma Steel, Jiuquan Iron & Steel, JSW of India, POSCO of Korea and so on. In 2011, the two sets of BSSF units were successfully put into use in POSCO and helped it resolve the long-lasting on-line slag treatment and environmental pollution bottlenecks and triggered cooperation of the third unit. In addition, Baosteel carried out technological exchange with Russian Kato Steel, POSCO Indonesia and POSCO Brazil to introduce its technology and build up its technological strength.

Technical Innovation Cases

Resorting to its profound R&D foundations and technology superiorities, auto sheet of Baosteel achieved a market share of 49% and maintained its leading position in domestic market. R&D of new products made outstanding breakthroughs. In terms of R&D of automobile sheet, Baosteel took the lead in industrialized production of the third generation of advanced high strength steel (Q&P) in the world, and achieved steady production of 24 types of 9 categories of super high strength steel, of which the strength of cold reduced sheet reached 1,500MPa, and that of hot galvanized sheet reached 1,180MPa, meeting international advanced level.

Improvement of Assets Operation Efficiency

Improvement of assets operation efficiency was a key strategic measure of Baosteel for crises and optimization of resource allocation in recent years, and was a systematic and long-term task. Baosteel in an all-round manner pushed forward management of assets operation efficiency, stressed the output efficiency of investment in its business and began to emphasis resource optimization and efficient return in addition to profit growth. By improving the assets operation efficiency, Baosteel had reduced the tieup of assets and presented a smart balance sheet.

In response to progress of management of assets operation efficiency, Baosteel introduced the operating result evaluation indicator system centering economic value added, which satisfies the demands for both shareholders’ benefit and utilization efficiency of the entire assets, and identifies the target for assets operation efficiency tasks.

Baosteel actively sought for methods and philosophy for improvement of assets operation efficiency, carefully summarized good practices and promotes them within the group, and was developing supporting incentive mechanism to bring the Corporation and all employees with unprecedented opportunities and challenges. Each unit based on their own characteristics proposed various methods and ideas for improvement of assets operation efficiency and carried out effective works with initialresults. Guided by such ideas, each unit not only made innovation in terms of environmental operation, development of both industrial business and financial business and investment decision, but also won achievements in traditional sectors including inventory management, process streamline and plan control by combining IT and the ideas of economic value added. At the end of 2011, Baosteel Daily for three consecutive days presented full-page reports on 17 best practices of nine companies. The paper also presented public appraisal of best practices which came out with five winners.

Technology Exchange

Baosteel attached great importance to technology exchange and cooperation with its counterparts to discuss on solutions about the “meager profit of steel industry”.

In 2011, Baosteel organized and participated in technology exchanges with International Iron and Steel Institute, Iron and Steel Institute of Japan, Nippon Steel Corporation and JEF Steel Corporation of Japan, China Steel Corporation of Taiwan (CSC), POSCO of Korean, Iron and Steel Institute of Germany and Kobe University of Japan.

Baosteel has formed regular technology exchange mechanism with CSC, POSCO and the Iron and Steel Institute of Japan. On February 2011, a delegation led by President He Wenbo visited CSC. Both parties frankly exchanged ideas on energy and environmental protection. In September, a delegation led by Assistant President Wang Jianyue visited POSCO, Nippon Steel Corporation and JEF and exchanged ideas on energy conservation and emission reduction technology and management, CO₂ emissionR&D and development trends.

Also in 2011, Baosteel saw various technology exchanges with domestic steel enterprises and research institutes.

Development in Cooperation

The morning of April 9, 2011 saw the official establishment of Baosteel Australia R&D Center in Brisbane, Queensland, Australia. Mr. Jia Qinglin, member of the Political Bureau of the CPC Central Committee and Chairman of CPPCC National Committee,Mr. Xu Lejiang, Chairman of Baosteel , President Paul Greenfield and Vice President Max Lu of University of Queensland unveiled the plaque of the Center. The Center was jointly sponsored by Baosteel and the University of Queensland and involved the University of New South Wales, Monash University and University of Wollongong, and would focus on technology R&D in the fields of new materials, new energy, energy conservation and environmental protection.

In 2000, Baosteel and Shanghai Jiaotong University founded the Office of Research on Automobile Sheet Application and Technology. For years, two parties by sharing advantages and resources have made joint efforts to Baosteel’s development strategy and solution about technological bottlenecks, undertaken State 863 Program, Key Hi-tech Industrialization Program of Shanghai, as well as scientific research programs of Baosteel and various users. In addition to multiple state- and provincial-level awards, its “automobile sheet lean shaping technology system” was identified an important innovative technology by the expert team consisting of academicians, and won wide recognition from Chinese steel and automobile industries. In 2011, the two parties signed the new cooperation agreement specifying key cooperation areas, methods and IPR. To play their respective advantages, the two parties also agreed that they would strengthen the producer-college-institute cooperation, create core competitiveness in automobile sheet design and production sector, and build the Office of Research a Chinese leading, internationally advanced innovative development platform and base with independent innovation capacity and internationally leading position in certain areas.

In 2011, Baosteel and University of Science and Technology Beijing signed agreement of the 2nd round of strategic cooperation. The new round of cooperation would adhere to the principle of “integration of advantages, mutual benefits, practical results and mutual development”, follow the guidance of the 12th Five-year Plan for science and technology development and the 12th Five-year Plan for new material and steel industries, give play to the advantages of the University in academicians, scientific and technological talents and research facilities and the industrial advantages of Baosteel in order to promote transfer of scientific and technological results to actual production and foster key technological innovations and breakthroughs.

In 2011, Baosteel enhanced team building for “Worldsteel/ISSF-Baosteel Special Committee, adjusted and optimized the chairpersons, liaison representatives and attached Committee’s organizations.

As a member of the International Iron and Steel Institute, Baosteel actively took part in programs and event organized by the Environmental Technology Committee, Environmental Policy Committee and SUSCO of the Institute to use its communication platform to focus on policies and rules of the steel industry and movements of international environmental organizations to cope with recent and future environmental problems of the industry.

In 2011, Baosteel became the chair organization of the “Clean Air” program of the Institute. The program provided technological communication on dust control technology,application performance, rules and policies and management practices and guidance for improvement of industrial environment. By now, the program had seen participation of 22 renowned steel enterprises from 15 countries. In March 2011,Baosteel sponsored in Shanghai the launch ceremony the program attended by 35 members and experts from ArcelorMittal, ThyssenKrupp, Tata Steel, Hyundai Steel, Rautaruukki, Anshan Iron & Steel Group, Wuhan Iron & Steel Group, Shougang Group and other domestic and international giants of the industry and extensive discussion on the content, objectives and progress of the program.

Baosteel also became the chair organization of the “China 2020” program which intended to gain in-depth understanding of the prospect of Chinese iron & steel market in the future ten years. The program pays close attention to the impact of Chinese steel industry on the world’s steel industry and its development trends, analyses the key elements that affect Chinese steel industry, and tents to build up close relationship and extensive communication with Chinese steelindustry.

In 2011, Baosteel sponsored the annual work meeting of SUSCO participated by steel enterprises from Germany, UK, Brazil, Japan, Korea and India and Chinese steel enterprises including CSC, Anshan Steel, Wuhan Steel and Baosteel as well as over 20 experts from the International Iron & Steel Institute, Chinese Iron & Steel Institute and Chinese Society for Metals. Participants held special workshops on the sustainable development of steel industry, exchanged ideas on the product life cycle program, steel for wind power program, sustainable development indicators and action projects, and organized the dedicated technological exchange of Baosteel. Participants also visited the production site of Baosteel and highly commended Baosteel’s fruits in sustainable management.