Baosheng Media Group Holdings Limited (NASDAQ:BAOS) Q2 2023 Results Conference Call August 31, 2023 1:30 AM ET
Zou Jixin – Baosteel Board Director
Wu Xiaodi – Baosteel Board Director, General Manager
Xie Rong – Baosteel Inc. Board Director
Fu Jianguo – Baosteel Vice General Manager
Wang Juan – Vice GM of Baosteel and Secretary of Board of Director
Distinguish investors and listeners good afternoon. Welcome you to participate in the Baosteel 1H 2023 Results Release. First of all, please allow me to introduce you the VIP guest and Board of Directors participated in today’s meeting today. They are the Baosteel Board Director, Mr. Zou Jixin; Baosteel Board Director, General Manager, Mr. Wu Xiaodi; Baosteel Inc. Board Director, Mr. Xie Rong, Baosteel Vice General Manager, Mr. Fu Jianguo and I myself is your old friend, the Vice GM of Baosteel and Secretary of the Board of Director, Ms. Madam Wang Juan.
So, as you all know, since the letter half of this year, whether the capital market or the steel industry have all entered a quite downturn and also with this kind of situation, I believe that you start to pay more attention to the industry as well as our company. Therefore, for our company in the half year, what did we do? And in the future, what is our plan? And also for our industries, what is our view? Well, now let’s invite Mr. Zou Jixin, the Board of Director of Baosteel Group to make presentation.
Let’s welcome Mr. Zou.
Distinguish investor friends, good afternoon. I’d like to really thank all of you our dear investment friends for your long-term support to the Baoshan Iron & Steel Corporation Limited. So, now I would like to represent the Company to share with you our performances in the beginning half of this year. And at the same time for our mid- and long-term, we’re going to share with you some of our plans.
So to give you an overview of the first half of this year, I think that you’re all familiar with the whole industry is experiencing a kind of a slump. Everything the last half of last year, up until now in this whole year, we haven’t really seen an obvious recovery ever since the last half year of last year, the whole industry has entered into a kind of margin or the border of the loss and profit.
So, we have 45% of the loss rate of a CISA member companies and also year-on-year decline ratio of total profit of ferrous metal smelting in the roll industry was minus 97.6%. So, we have also overcome a lot of negative factors and our company profit still ranked number one reached about RMB6.52 billion. And also our revenue reached about RMB170.2 billion and also net profit attributed to the parent company ¥4.55 billion and the cash flow from operating activities, excluding finance company was ¥11.31 billion and EBITDA ¥17.12 billion and EPS ¥0.2 and also ROE 2.32%.
So you can see this kind of reduction of the profit was mainly due to the price reduction of the sales of the steel. Therefore compared to the same period last year, there was a decline of RMB18.1 billion. And also the cost compared to last year was also reduced. The cost contribution was about RMB13.1 billion. Of course, there’s also some of the investment income interest, and this year we’ve also had some, the provision because last year we had some provision for declining value of inventory which was released.
And if you look at the Q2, compared to Q1, there was an increase. For example, our income also had some increase 179 and for the Q2 more than 200, and also we had about a RMB100 million of increase in scale. And also for the EPS, it also has a growth in Q2. Therefore compared to Q1, the Q2 increase was due to a lot of the contribution of the cost. And also our finance company also made some reforms which positively impacted on the growing of the operational performances.
So faced with the difficult situation in the market, we have adopted some measures to reduce costs and raise efficiencies. For example, our ROE percentile value in the industry in Q2 reached a 79 and a profit per ton of still percentile value in the industry in Q2 reached 93 and also we’ve done some technological innovation as well. For example faced with the current difficult situation, we’ve done some related reforms. And among them, the key was really the integration of purchase of production and sales.
And the purpose of this kind of reform was to more rapidly response to the market and better serve our clients and also raise our capacity to rapidly response to the market changes. Especially in terms of purchases, we continue to deepen our six reforms. For example, purchase of various resources and also we implemented all the biddings as possible. And also we enhanced R&D coordination between purchase and also production. And one highlight is the inventory of our iron ore. In the beginning half of this year, the amount of that actually is about the half of the total amount in BAU combined. Therefore, this is a very big progress. Thanks to our reforms this year.
Another thing is in terms of the iron ore purchase prices we also considered a lot of the market factors and also in terms of sales and R&D in a Baoshan base, we also continuously optimize our structure and continue to improve on the competitiveness of our products because in terms of integration of a production sales and R&D, we also adopt different strategies and a method base on the characteristics of a different basis.
For example, for our Shenzhen base, we actually pushed forward simulation management and mechanism and set up fly products and management units to rapidly respond to the market. And for the Baoshan base, we expanded differentiated products to build an export oriented base, which is also the feature of the Baoshan base.
And another base of ours is Shenzhen base, and we have set up also two market value building centers in the nation base. Therefore, we combine the capabilities of all the basis to enhance our overall ability. And in terms of marketing and sales, we have the focus on high profit and high market share products as the core. And we try our best to improve on the product competitiveness.
And also, we explore market values that seek differentiated opportunities. And this year, in terms of sales of homogeneous product, we have done a lot of work as well. And we promote the transformation of our homogeneous product marketing model and also enhanced on the linkage between domestic and our overseas sales to open up overseas markets, which is another of our strategies in terms of sales.
And talking about R&D, we vigorously carried out the development and layout of debut products and unique leading products. At the same time, we also set up technical working stations in key markets and customers. So, we are very much market oriented. And in the beginning half of this year, in some key markets, we have set up these technical working stations, so that we can have a better understanding of our customers to better serve them.
And also, we require our R&D staff to station at different basis, so that these staff members can better serve those spaces on-site. And this year, we also deepened the technology to reduce costs and increase efficiencies. So talking about cost reduction, RMB2.99 billion cost was reduced in H1, realizing 102 of annual target, and also energy consumption contributed over RMB0.7 billion and variable costs reduced by RMB1.63 billion.
We have carried out a lot of energy conservation projects. So, we got good results from all of our previous projects. And also process cost reduced by RMB106 per ton. So for the beginning half of this year, we deepened product management and kept pushing forward Million Thousand Billion strategy. RMB1000 gross margin, and also these products, 1+1 plus M products continue to be promoted and we conduct differentiated marketing and sales.
And also, we have added the silicon steel into our other differentiated products. So altogether, 12.28 million tons compared to the same time last year, there was an increase of 600,000 tons in terms of sales. So, these are some very good results from our integration of R&D and sales and also production.
So, you can see in terms of export order, last year, there was 2.35 million tons and this year 2.99 million tons. So, the percentage increased from 9.8% to 11.7%. So, in the beginning half of this year, we have altogether realized the world debut of seven products, including many new products. And also the total R&D investment rate was 4.69%.
And in terms of silicon steel, the wind power developed very rapidly. And around the wind power development, we provide high-quality silicon steels. And in terms of a heavy plate, as well as some steel pipe, we provide all these products in large scale projects, including welding wire steel and also hot road extra strength steel. So, in the major national projects, you can all see the application of all of these of our products.
So, facing towards the future, for example, some of the overseas projects, the energy conservation and the smart manufacturing, green manufacturing, and high efficiency, et cetera are some of our focuses. And on May 1st Baosteel officially signed a contract with the Saudi Aramco and PIF to build the world first green analog carbon food process, thick plate factory, which was also the first overseas greenfield project of steel manufacturer base in China BAOS history. So, you can see our DRI was 2.5 million tons and also heavy plate reached 1.5 million tons.
At the same time, we also have some other projects underway. For example, the new EVNGO silicon steel structure optimization project and also steel bar structure optimization project et cetera and also this kind of half a million tons will mainly be used into the new energy vehicles. And also so far this project has been running very successfully. And also in the Shenzhen base in Q2, we started the construction of the project and it is expected to increase the capacity by 550,000 tons in the future.
We also would try to increase the competitiveness of the long steel. In the Baosteel base, we also have a lot of projects being launched. Also our Shenzhen base, we have also some optimization projects on the way. In terms of green in the low carbon in the beginning half of this year, we’ve also made some good results, especially in terms of energy efficiency we always try to save it.
And in the beginning half of this year, rolled steel bar actually, we reached 81% of reaching a standard, the 81% of the key process energy efficiency reached the industry benchmark in the beginning half of this year, and also the green electricity transaction over 415 million KWH was reached. And also we greatly conduct a project in terms of a roof photo will take power generation project of 25.1 megawatts, which was put into operation.
We also on a lot of other technological work in terms of reduction of emission and a low carbon production. We look at the whole life cycle of the product and to look at the total emission in the whole life cycle of the product. Therefore, we also enhance on the construction of the management system of the low carbon management, and we try to satisfy the national dual carbon growth.
And in terms of the green products for example in Baosteel base, Shenzhen base, we have some products which we can provide to the clients. And also you can see here we have the blast furnace and also the blast furnace in Shenzhen. And we have reached the 21% cover reduction target. And now for Shenzhen project, it is ongoing smoothly.
And later and speaking of the smart manufacturers, you can see here the 4 Uniform Index is 75.4% and we have unified operating rooms, all operating positions robots, and we have remote operation and maintenance and also this is online. And also we have this smart operation decision-making system.
And this system strongly supports the one company and three base managements and can realize a pre-calculated operation and early warning management. And also in terms of data and application, we focus on the marketization of data. And in the first half of this year, we maintain the highest the correct rating of the global steel industry including Standard & Poor’s, Moody’s, and Fitch. So, we have the highest credit.
At the same time, we focus on ESG in the past few years and among the China ESG listed companies, we got the five star of the pioneer 100 of the China ESG listed companies, ranking number four in the comprehensive ranking and first in the manufacturing industry. And you can see here, we are selected in the first global sustainability yearbook 2023, and also one of the Best Progressive Enterprise in this industry.
And speaking of the outlook for the second half this year still we have a very big pressure in terms of demand. And in the short run we do not see any better signals. And also we have the control policies of the domestic steel capacity and production. And we support these policies and we believe these policies will continue.
So total annual production of the crude steel will keep unchanged or decreased a little bit compared with that of last year. And speaking of the downstream, we believe that in terms of demand, for example, auto industry, ship building, home appliances, these industries demands are normal or still booming, but in terms of a real estate infrastructure, a construction machinery, the demand this week.
And in terms of raw materials, you can see the INO prices. I believe in the second half this year, the price will be lower than the first half of this year. And the cooking coal’s prices will see fluctuation. And China’s domestic production capacity will increase, but in a very small extent. So in the second half this year, we believe the prices of cooking coal will see some fluctuation. Also for the steel scrap, I believe the market is closely related to the domestic crude steel production.
And speaking of the domestic production, in July and August, the production was high, but in quarter four, we believe the production will go down. At the same time speaking of stimulus packages, the policies, I believe the likelihood is very low. So we need to focus on the consumption. So in September, I believe that, the demand will be good. So for the downstream, I mean, for the manufacturing industry, it is better than construction industry.
So the sheet is good. And I think the second half will look very much like the first half of this year. And in the future, we will focus on the implementation of the spirit of the 20th National Congress. And also we will accelerate the reform of SOEs and accelerate the layout optimization and the structural adjustment of SOEs and next speaking of the target for the next year.
So first, we need to be number one in terms of the profitability in this industry in terms of business performance, and the second is the profitability per ton of steel, which I believe is more important. And of course, it raises higher requirements for us. Key focuses. So deepen the transformation of production, sales and research. And why we focus on this job this year?
Because for us, first of all, it is to be market or user centric; second, in the past, the system was very different from nowadays. So we need to have the mechanism of the PSR optimized. And also we will carry out the reform and also to spread the successful experiences. So far, I think the result is good, and our people are highly motivated for the mechanism of PSR like our Baosteel base, the synergy mechanism needs to be deepened.
And also some incentive mechanisms need to be implemented. In the first half of this year, we have already announced the incentive. So for the second half of this year, we will focus on differentiated product strategy and also to avoid homogeneous competition. For example, we have mechanisms to evaluate whether we have enhanced our competitiveness of homogeneous products.
Next for the cost of DAU, and we will continue to focus on costs down a further reduction of RMB1 billion because the total year target is RMB4 billion, and the priority is the liquid iron cost. In the first half of this year, the cost of DAU results was not ideal, but there are different reasons, for example, the market fluctuation but also internally, like the stability of operation of the blast furnace et cetera.
So, we will focus on the stability of the operation of the blast furnace to reduce liquid iron cost, and there are many measures can be taken. For example, we leverage HiTec, improved efficiency to lower the cost. And also, for example, improve the processes or we can save energy to reduce copper reduction and also to have logistics optimization and economic furnace burden.
Next, reshaping the competitiveness of auto sheets, this is our core product and also one of our core competitiveness. But in recent years, China’s auto market has undergone fundamental changes. So primarily the structural changes for example, JV brands, especially Japanese brands, their production and output has been reduced.
But for new entries, China, brands like the NAVs, the production is up and the Baosteel used to work with JV brands quite a lot, but now the market has changed. So how can we get adapted to this new market? So this is a question we need to think about. We need to take actions.
So you can see here we say we need to reshape the competitive advantage of auto sheets. So we optimize the structure and provide better quality in order to get better market share. And we will have accountability and ownership for different workshops or companies to improve our market share. And also for the second half this share, like the new production lines are striving to achieve targets like the diversion base.
For example, the 500,000 tons non-oriented and new energy silicon steel, it needs to achieve the targets of production and efficiency. And this is high-end product, which is greatly needed by this market. So product plus production plus technological indicators all need to hit the target. And our aim is that we can become profitable for the year when it puts into operation.
And in the second half we’ll continue to expand overseas markets the size. And the total export, our straight target is the 6 million tons. And compare with the past few years, well the export was about 4 million, so it’s a big increase.
So we need to leverage the geographical location of Xinjiang manufacturing base and it aims to get like 15% of the total export like the silicon steel. It can well we give priority to Xinjiang and Baosteel basis, the coastal cities for export. And for our overseas enterprises there are sales targets. And this year, we have some new layout overseas in order to improve in the marketing and channel capabilities.
And speaking of the losses of Baosteel manufacturing base, for the first half of this year, it was negative for 390 million. And in the second half, it will be profitable. And so that throughout the year we are still profitable for Baoshan base so July and August it was profitable. So, I would say throughout the year, it’ll not lose money.
And this is not just a form nation base. Actually it is the target for Bao steel as a whole. So, we will give support to R&D of focusing on the innovation of the auto, auto steel, like the precision unchanged tools because our auto products are mainly produced in machine base. And also we can reduce our costs by, like improving the furnace burden, et cetera.
Again, about the liquid ion cost, we need to control that cost. So far, the lost the furnace in nation base is stable since the 2nd of June. And the cost of the liquid has been reduced so greatly, which supports the profit making, the turnaround in nation base and next mid- and long-term strategy. I’d like to leverage this opportunity to give you a brief instruction of the strategy.
So first of all, M&A, I think it’s a trend for the steel industry in China. For example, within the group, we have some horizontal competition of panels, so, within the BAU group, we will need to have some M&A and also outside of BAU group, if there are good assets.
We will leverage the synergy. We have opportunities to do some M&A outside of group. And then for the niche markets, also M&A for example, we can improve the integration in each segment. And next is overseas landscape. For example, we can continue to do M&A overseas.
In terms of internationalization, we made some overseas base layout. For example, we have the Saudi Arabia project. Since May, we have visited Saudi Arabia multiple times to participate in the China’s entrepreneur conference of the China Arab Corporation Forum. And many of our colleagues are participating in this process. And also we are promoting the application of the Sikh plate project. We are conducting a lot of overseas researchers. And also there are some construction work. So all of these have been launched and we are actively promoting this whole process.
And also for some Middle East and Saudi Arabia area, so we are actively seeking opportunities in those regions. And we are investigating market on the Saudi Arabia and the surrounding regions because they have a lot of resources as well as advantages, especially in terms of green and a low carbon transformation. Therefore, we have increased our efforts in the researchers in Saudi Arabia and also the Middle Eastern regions. Therefore we’re going to have the opportunities. So we will definitely increase more investments, in Middle East and Saudi Arabia.
And also in terms of internationalization, on one hand we built our overseas base of steel making. And secondly, in terms of marketing and sales network, we try to enhance our capacities overseas as well. And also, we will definitely continue to raise our internationalization level, as well as our overseas marketing and sales ability. So we have already planned altogether 38 overseas marketing and sales basis. And now we already have 20 of them.
And this year, we are going to have 6 million as the goal. And the BioMar Group will further expand their scale. So in the future, it can reach 8 million or even 10 million tons. Therefore, if we have the overseas marketing and sales ability or not, this will be the fundamental key of it therefore, we will increase on the overseas market expansion and international layout. So in Europe and Australia, we have all set up our R&D centers.
And overseas marketing and sales, actually has very high requirements, because our product types are very high. And for example, silicon steel, steel plate and seal pipe for the automotive use et cetera. So they are very professional. Therefore, this year, we have assigned a lot of our technicians to overseas. Therefore, they can help to do the work of marketing and sales altogether in this overseas market. And also, we will regularly assign technicians to overseas, for technical support as well.
And for the high-end development, our product business plans, mainly focus on the 1+ 1+ and product family strategy and also the differentiation strategy and we need to also meet the national goal of a dual carbon and try to have both technical innovation and differentiation. So we will definitely try to play the role of leading the way in the whole industry. And I think technological innovation is definitely the way for us to maintain, it’s very advantageous position in the market. And talking about the differentiated products, we will continue to increase the driving force of the products.
For example, the R&D and the market, the technological sales and marketing, etcetera. So for the marketing and sales strategy, we would also make some reforms to solve some problems. For example, we will develop new products. So definitely, we will have the technological innovation and a differentiation and both of the driving forces to help us to develop the high-end products.
And also in terms of a smart manufacturing, we focus on the automation, for example, less humanized, or unmanaged centralized control will be created and also one click on-site, et cetera, will all be created to achieve the ultimate automation. In our full basis, we will continue to expand the automation basis and also phased towards the future. We are going to meet the smart manufacturing requirements, by adding more big data and intelligence in it.
So on our platform, we need to deep mind the data from our platform to become smarter. And also, we need to speed up the data governance, and speed up governance of our data assets. Also, we need to expand the internal talent, especially in some of the application scenarios, in all of our bases as well as our views. We need to make full use of the data at hand.
And then we can make effective decision based on all of this informative data especially in terms of AI, right now our AI application is at a certain level, but not high enough. Therefore, in the future we need to have higher AI concentration in our projects and also, especially in terms of our product testing and site safety and remote operation, et cetera, we would need to make some breakthrough in AI.
And in terms of bringing a little carbon and environmental protection, we need to first of all increase the energy efficiency. So we need to 100% reach the energy consumption benchmark in the industry. And also we need to lower the temperature to increase the TPC turnover rate and also iron temperature drop and heat transfer and the heat charging rate to activate alternative efficiency of a stock assets.
And Baoshan base and other base have already reached the ultra low emission and change animation base this year, we also make more efforts to achieve this goal and we try to reach the A level company performance level. So these last two phase this year will hopefully also realize the A level enterprise level with environmental performance and also we manage water et cetera as well.
So, we propose zero waste water emission internally so China-based research that Baoshan animation basis are still catching up. And in terms of low carbon methodology, we have a technology development first of all. For example, like I mentioned the hydrogen-rich carbon cycle blast furnace.
And also we have the hydrogen base, the shaft furnace and also multi-function converter, BMC and electric furnace, smelting car plate, and a melting technology of a medium and a low grade and we’re going to make all of these innovations in those high-end technology development.
And talking about the production line layout Baoshan base actually is planning to have the full steel scrap per EAF, long product zero carbon production line. And we have the high grade thin plate zero carbon production line in Baoshan base already. And also in Saudi Arabia, our project will also have the heavy plate zero carbon production line. So, before I talked about the carbon neutrality, so we need to enhance a lot of technological work in this regard.
Since 2021, we had the construction of an intelligent carbon data platform set up. And we have built green and low carbon soft power, which is leading in the industry. And according to the international standards, we can automatically form a report in terms of a carbon footprint and also it will go through the third-party certification.
So whether the CIVA requirements or the other carbon certification, they can all ensure that our data is very precise and reliable. So I think in this regard, our company is rather leading the way in the industry. So all of our products, we have the real time calculation of a carbon footprint, and we already have this kind of ability. So right now we are having the calculation platform certified by the third-party.
Therefore, in the future, our platform will have even more dynamic calculation so that we can completely meet with the laws and regulations in terms of carbon emission. And in terms of high efficiency, we also try to take construction of operating center as a starting point and a deepen mold company and a multi space management mold.
In China’s recent years, we have iron group management model continue to be dependent. We have the full basis establishment and now we also have a purchase center, operation center, R&D center et cetera. The business division and process division, product sales and research division, they are all unified and very professional.
And also this kind of one company and a multi basis management models are being carried out continuously and our BAUs and R&D and production and sales, et cetera, are all integrated together and they can very well support our one company in a multi-base management mode. So that is about the beginning half years performance. So as for the latter half years goals and planning, I would also like to discuss with you.
Well, we have also some Q&A session later on, to discuss further with you. Thank you.
A – Wang Juan
Thank you very much for director Jixin for your sharing. Just now Mr. Zou shared with us in the beginning half of the year what Baosteel has done and in terms of dealing with the kind of a slump situation in the economic development in the beginning half of this year what they did. But of course, we are still faced with a lot of challenges, therefore, how should Baosteel do?
Well, Mr. Zou already gave us a very informative information and also he has introduced about our future goals, but I think our investors still has a lot of concerns and questions. So now we will have more time for our investors. And then we’re going to have a Q&A session. So in order that more people will have an opportunity to ask questions, I would like to emphasize that every analyst can only ask one question. So I hope that you can understand that and then we can increase the number of questions of investors.
So first, let’s invite JPMorgan, [indiscernible] to ask a question.
Board of Director Mr. Zou hello and dear peer leaders, I come from JPMorgan raw material analyst. My name is [indiscernible]. First of all, I would like to congratulate your company for your greater achievements in the beginning half of this year because the whole industry has lost and you still make a good profit. So that very well shows that our company is really leading in the cost of management and the product competitiveness. So my question is to ask you, Mr. Zou, as we all know, the steel demand is weak in China and with this kind of situation. In the future our bigger potential growth is overseas development of the steel. So Baoshan is leading the way in overseas development, and our overseas base is located in Saudi Arabia. So, I want to ask you, what is your future overseas expansion goal in terms of timetable? For example, which countries will you focus on? And apart from building factories, would you also consider acquire some excellent boring assets? Thank you.
Thank you for your question. Our Saudi Arabia project, we all pay much attention to that. And then May 1st in Saudi Arabia, together with our collaborator, Saudi Aramco and PIF, we had the signing ceremony. And after the signing ceremony, various work is being promoted and including global researchers and also some national approval process, et cetera. And also we have signed more than 10 colleagues in Saudi Arabia down to work together with our partner.
So for our Saudi Arabia project, we are going to utilize all of the committed resources to be fully committed to build this project. And then with PIF and Saudi Aramco, these kind of partners, so we will enhance on the collaboration with them. And our goal is really to build this project into world’s first green low carbon fixed plate steel projects. And after this product comes out, I think its competitiveness will be very high in the world market.
At the same time, I hope this project can get very good social effect as well as economic effect to ensure the overall success of this project. Just now, you talked about a steel company making overseas investments or expanding the overseas markets. So I think that globalization is an necessary road for Baosteel to take for internationalization.
So in China, speaking of overseas marketing capabilities, it is also about going outside those overseas and also, our R&D system establishment is also about going out. And for the overseas production base investment, during the past three years, we have been working on it. And our principle is, we need to look for as many resources as possible, but make decision in a very cautious way, so that we can have good operation and management. So not only do we have the Saudi Arabia project, we have looked at very many other projects, and also we have some projects in the pipeline.
But I think facing the future we need to stay focused, like in which area, like the belt and road, countries, et cetera. And among the Belt and Road countries, we focus on the assets that are green and low carbon, or places where are like low carbon energies. And this year, we have been to Saudi Arabia for so many times for research and study and now we are very optimistic about this place, because speaking of energy, the cost of energy, it accounts for a higher and higher percentage for our per ton cost.
And in a certain period of time, the cost was higher than the raw materials. So we want to focus on green and low carbon development, and also to get our energies or raw materials more diversified. So we focus on the Middle East. By speaking of the overseas layout, it’s not just about steel. But also about the upstream and downstream the industrial layout and for example, we can focus on the heavy plate project.
And also, we can have some M&A projects to acquire and reshuffle for good assets. And so far, we will not just to spread the line too long, we just focus on the investment in our own industry, and also upstream and downstream integration. But speaking of internationalization, there will be a lot of the challenges. And now we start to focus on the risk management of overseas investment. For example, we have overseas talent, talent pool and training, et cetera, which is also a very important action for the overseas. Thank you.
Thank you for your question and also thank you Chairman for answering the question. Now let’s invite [indiscernible] from a Citibank. We focus on like one company multiple bases and in the press conference this concept has been mentioned several times and today we talk about the operation center or business center. So, I’m wondering in terms of our management system, any changes if we are going to have this operation center and why do we have this operation center?
So one company multiple base in Baosteel has been talked about for more than 10 years. In my understanding, one company, multiple based in the history of Baosteel can be divided into three phases. The first phase from or around 2013, we started the construction of Jinjiang at the time. The main task of one company multiple base was to construct a steel production base in a different city regarding talent management of projects, et cetera.
At that time we were at a very preliminary stage and after the integration of BAOS another topic came up. So two bases, which are thousands of kilometers apart so how can we exchange information? So at that time we focus on the linking or connection of information, communication and some systematic big change like procurement, centralized, procurement centralized R&D, et cetera. So for me, this is Phase 1 and for Phase 2, because we have four bases and every base, their production level is different, because they are in different development phase and their personnel skills are different.
So one company, multiple bases can provide with better management. For example, we have a process department to help each space quickly improve their production capabilities. And of course centering around Baoshan base. So it’s about the sharing of management skills, et cetera. Great results had been achieved in that base. For example, the silicon steel, which is very important for the operation of Baosteel and for Jinjiang base.
And under the leadership of Baoshan base, the silicon steel production has been greatly improved. And this year, we know this industry is very difficult. But anyway, Jinjiang base is profitable and I believe that has made a solid foundation for Jinjiang base. So this was Phase 2. And why don’t we talk about the operation center, because we have 4 basis, and when we have a contract, which base will produce the product? So this is a question that is worthwhile our study. So this center is about the optimization of resource allocation.
For steel industry, we want to have continuous, stable, and batch by batch production, which has the highest efficiency and most optimized cost. But there are different kinds of customer, different kinds of demands. So there has to be switches among different basis and that is the target of the different basis regarding better efficiency, better profit. So, that we can have allocate we can have the resources allocated accordingly. But in the past when we had a contract or marketing people, our sales people say, this contract goes to which base the order is placed. So when we have the order, we enter the order in the system, machines the, or do some algorithm and say the most optimal choice is which base.
So this is the dynamic optimized allocation of resources so that we can greatly minimize the decision-making process. And the production is more continuous and efficient because if you change on a basis, the efficiency cannot be good and there’s downtime and there’s fluctuation of production. And for manufacturing industry, this is not a good thing. And the second issue, or second topic, as we mentioned by Jixin in his presentation, when we have multiple production base inventory, resources can be shared.
For example, iron ore, coal, inventory and spare parts and components. How can we share those resources among the basis so that we can minimize the inventory and also to have a quick turnover of the capital? So, this is a focus for today and also investment, et cetera.
Well, in the past, well we think about projects in a base by base mindset, but now we have four bases, for example, 100 million investments. Where should we put this money? Where can we have the best outcome of this investment? So one company with multiple spaces, this is an ongoing task force. You have the operation center. So this, we have now entered a new phase and this is an important task of ours and we’ll continue to work on that. Thank you.
Thank you [indiscernible] for your question and thank you Mr. Wu for your answer. And now let’s invite [indiscernible] from Citi.
Thank you. My name is [indiscernible]. I have a question. I want to ask the question to Xie is about information quality. So, as the director, how can you make sure that we have good auditing result and quality in order to manage the risk?
Thank you for your question. Well, and I think many other investors want to ask this the same question. Things we started to have the capital market, there have been rumors saying that, some companies actually falsify information. And for Baoshan, we really emphasize the quality of auditing information. So we continue to enhance the financial management system in order to make sure that they have good processes in place and the processes have been put into execution, making sure that, our balance sheet, our financial data are correct and precise.
So first of all, in order to make sure that, all the accounting information is correct, you need to have a capable team. The skills of the team, whether they can produce, like, reliable accounting information. This is very important. And we have a very strong finance team, and we have trained a lot of senior management. So first of all, they are very capable. And second, speaking of the accounting, the work of accounting, the accounting policies or rules, and then the interpretation or understanding of the new accounting rules, everything has been done in a very good way.
So I think the management team has provided authentic and genuine accounting information. And the second, we need to have a sound and complete system. We have a lot of subsidiaries and branches and the business size is big, but we need to provide centralized accounting systems. This is difficult. So we have made a lot of effort. You can see we have a lot of resources acquired, but we use very consistent accounting rules, and we have invested quite a lot in that. And also, we need to have a standardized accounting work.
We have so many subsidiaries, so many branches, as we mentioned, by — and their skills levels are different or development phases are different. But our accounting work of fundamentals are standardized and every records have to be genuinely reflecting the real business, and it needs to satisfy the accounting rules for the verification, for example, the combining of the sheet, et cetera, everything has to be authentic and genuine. And secondly, we have set up a very perfected internal control system in terms of our internal integrated construction, and one company, multiple base structure, et cetera.
All-in-all, our internal management systems are important including the production, supply and sales and also investment. For our different places, all of this internal control management can ensure our company can have a very standardized and effective operation. And at the same time, we can ensure the reliability of all kinds of information and data. Therefore, our internal control really emphasized on that, from our Auditing Committee and our directors and our external auditors pay much attention to the internal control.
And lastly, our Auditing Committee has two helpers. One is internal auditor, another is external auditing firm. For internal audit, we focus more on the internal control system effectiveness and design perfection and also the efficiency in the implementation. Therefore, we can very effectively conduct all of our business operation in a company, and we can have an effective operation and have effective reporting, et cetera.
Then these are very good basis for us to have realistic and effective accounting information. And as for the external auditing, it is very important too. The final financial reports need to be audited by them and they will come up with an auditing report. And this as will show whether our performances and assets and property and loss can all be verified and then the investors can believe in it and for the analyst, they can also make a reliable analysis on it.
So therefore, we need to hire a good quality auditing firm. They need to be very qualified when we select them. For example, if the auditing firm is unqualified, then we showed a lot of the risks. Therefore, our auditing committee and also our board directors pay much attention to the selection of external auditing firms. So I think that internal audit, as well as external auditing firm can be the two great helpers. If they were both good, then the auditing committee will can rest assured.
Therefore, in our meetings, including the board director meetings, all this data that come out from it can actually be very objective and realistic. And then our analysis based on that can be very valuable. And then the decision-making based on these data and analyst can also be very helpful.
Thanks Board of Director Xie Rong for your very informative answer. So, I think all the investors after hearing your answer can be more confident to about going data, information quality, and our internal audit and external audit teams can also be more encouraged by your comments and in the future will carry out even more effective work.
Now, let’s invite the next person from UBS [indiscernible]. Please ask your question.
Thank you Mr. Wu and Mr. Zou and their leaders for sharing. I’m [indiscernible] from UBS. I have a question about the capacities because host you in 2024 that has the 80 million tons of capacity goal. So, how is it being developed up until now? Could you share with us? Thank you.
In our plan, we really also mentioned that next year our capacity will reach 80 million tons. So why do we have this kind of growth of 18 million tons? Well, there are several reasons. First of all, I believe that in the steel industry, we are going to have a high quality development. Therefore, we need to have this kind of requirements of a production. So according to the nation’s document requirements for these iron ore steel industry, they encourage the top companies to have reorganization to promote the optimized organization of the industry.
So, the country wants to base on good countries to have a reorganization as well as M&A to form one to two very famous companies in these segmented markets. And also the country encourage across region company’s reorganizations and merge an acquisition so this kind of M&A can solve the regional problems of scattered distribution of a small and medium companies that produce iron and steel. So BAU Steel is a flagship companies and advantageous companies in the industry.
Therefore, in order to satisfy the national high quality growth requirements, we will definitely have our shoulder more responsibilities in this regard. So this is one reason. And another reason is for our future development definitely we need to have this kind of capacity as well. Our company has four base. Over the past decades of development, in talents and in technology, we have all accumulated a lot of advantages. And right now we found that, under the current situation, some of the advantages cannot be brought into for play. Therefore, by means of M&A, we can really share our very good resources and then we can realize our economy of scales.
And you can see that our group really do have the ability and experience for M&A because BAOS already had a six years of experience since its integration. And in this whole time we always try to perfect our one company full base strategy. So I think that this proved to be successful for us. And the whole process proved to be easy rather than difficult. If we have now a six or even more basis, it’ll be easy for us to expand as well. So in the past six years of BAOS was operation, you can see that we still’s basic abilities have also been improved. Therefore, now our companies have the ability to absorb a new basis. We already have the ability and talent and technologies to expand.
So you asked me about what we are doing right now. Actually, we’ve been always looking for internally and externally suitable opportunities and we are doing a lot of preparation work. So I believe that this goal in 2024 can more or less be achieved. Of course, this task is also not so easy to accomplish. It is difficult to work. We need to concern various parties of needs. So, we must focus on various considerations and aspects and we need to be fully prepared as much as possible and then we can implement rapidly. So that’s my answer.
Thank really for your question and, thank you Jixin for your detailed answer. So now let’s invite Goldman Sachs [indiscernible].
Hello Mr. Zou. I’m the steel analyst from Goldman Sachs. So, I have a question to ask Fu Jianguo. Actually, I heard that next year, this steel industrial will be incorporated into the National Carbon Transaction Market. So if this is the case, what will be the influence to the industry and what kind of preparation you have done as a company?
Thank you for your question. I think people are interested in this question and we’ve always been paying much attention to this issue. For the steel industry, the carbon reduction is a very important mission of our industry and our industry and GDP accounts for 5% in China, and a carbon emission we account for 15%. Therefore, in terms of carbon reduction, definitely, it will be a very important mission of ours in the next decades. But as to what kind of technologies should we adopt and at what time should we reform?
Well, these are all very important for us. If we move early, then maybe we would make even more cost. But if we move late, then we will be lagging behind in the industry and do not have enough competitiveness. So we are closely paying much attention to this topic and doing researches on it. So on 17th July, we held National Ecosystem Conference, and President raised the opinion in the conference that, in the future, the energy conservation carbon control will transform into the carbon reduction control, energy control.
Therefore, in future, we need to also accelerate our pace of action to satisfy the change of national policy. Also, the EUC policy promulgated is also clear, with their stringent timetable. So in the beginning of next year, we are going to apply already. And by 2026, we are going to pay the carbon taxation. Therefore the China steel industry, the challenges we face are huge, because our traditional industry 90% of it is the faster furnace base with heavy assets.
So with reform, of this kind of process, it takes much time and a lot of investments. So based on the current situation, this kind of a national policy promotion, including the carbon taxation driving force is not enough for us, because in the market, we lack this kind of driving force. So right now, our clear demand comes from our downstream users, as well as the corporate social responsibility as a big company. But when we calculate economic benefits, this is our big challenge.
As we know, European Countries, they have now a large scale carbon reduction transformation, because now they have very clear timetable. And at the same time, talking about carbon taxation, their taxation is very high. Therefore, their ROE is very logical or it is necessary for them to have this kind of transformation economically. And from the EU companies perspective, for them, carbon taxation can be utilized in supporting the steel company carbon reduction in EU. So right now, 30% or sometimes even 60% of the fund support is in EU and this fund comes from the carbon reduction.
So for us, actually, together with national government organizations, we are also communicating with them. So we also hope to accelerate our pace, so that steel can be incorporated into the national carbon transaction market and also Environmental Protection Bureau in China are also having many conferences. They also require this Steel Association to carry out basic researchers and study, so whether the carbon quota and also to achieve carbon duality goal, we all need the support of lot of data. And right now, we lack this data. And also still industry compared to electricity industry, their process is long and complicated.
Therefore, in terms of carbon calculation as well as accumulation of the basic data, it is more difficult. Therefore, I understand that, it takes time for this whole process. And for Baosteel, we would also have some advantages and bring into for play our advantages of our accumulation of technologies and the data and experience. And we were together with other industry counterparts to conduct some basic data research for the steel industry, so that I hope that we can more rapidly be incorporated into the national carbon transaction market.
So then the steel industry came and must start our steps in the carbon reduction, especially layout of the low carbon process and the distribution of resources and the transformation of equipment. So we also hope that country government, by means of a carbon taxation, can also give our industry some financial support. Well, as a flagship companies in the industry of course, and we will also make some technological preparation.
And for Baosteel, of course, we make a lot of preparation in this regard. Our board director just now also introduced us, our Jinjiang base, and we have the low methodology and Jinjiang base by the end of this year, we’ll be put into production and also we will soon start operation electric furnace construction, et cetera.
So we are very actively carrying out this kind of a preparation and step by step we’re going to implement the carbon reduction reform and before the big reform actions also by means of energy saving and we can lower the emission reduction as well. So we’ve already got good results from it. In the beginning half of this year, we made a big contribution for the Company business as well. So now we are still in the process of further promoting it.
And in terms of green energy, you can see that in our plants there are solar panels. And by the end of this year, and beginning of this year in Baoshan, you will see wind power. And in terms of investment, we are investing more in green energy because there are policies issued by the government regarding green energy. So we’ll closely follow the policy to invest more in green energy. And the most fundamental is the high gross methodology anything than we’ve seen some results.
So, we have great confidence and we will closely follow the national government’s policies to step up. And in order to deal with the carbon emission data and especially beginning of next year, we will start especially in the European Union, the carbon report. Long time ago, we’ve started the establishment of this carbon system, carbon data system. So for our products, the lifecycle carbon emission verification can be realized.
I think you have noticed that for hot roll like EPD reports are available. And recently we’ve organized a carbon audit and in our reports you can find the detailed information. For our downstream customers like Benz, we’ve reduced 30% of the carbon emissions like equal that’s our brand. And this product has also been audited in terms of carbon. So for the carbon auditing system, it is undergone the third-party certification check. And for C-band, we are going to optimize our system accordingly.
So by the end of the year, we are capable of a supplement of submitting such reports. And in China we are well ahead and as a responsible company, we are also promoting our upstream suppliers to carry out their carbon auditing and verification. And they have provided a platform for the supplier’s carbon auditing. So we will greatly leverage the ecosystem of bio-steel and also our strengths in information technology to deal with the carbon auditing, carbon check, carbon report these kinds of requirements.
And for the results, we’ll share those results with the industry. So we greatly look forward that our low carbon products can be greatly received by this market. And as a result, the low carbon technologies can develop very quickly and the steel industry can follow China’s the 30:60 dual carbon strategy and also to contribute ourselves to the hitting of the target. Thank you.
Thank you [indiscernible] for your question and thank you Jianguo for your very comprehensive answer. And next, let’s invite from CICC [indiscernible] to ask you a question.
Hi Jen, and thank you all and the management team for the sharing of the results of the first half. And I have a question and that’s for all Wu. Recently, we have noticed that some local governments have released their planning regarding the reduction of capacity or output, but from the data we have, it seems that the raw steel, especially like the liquid iron, the production is actually at a very high level. And after September, what is your perspective regarding supply and demand and how the market will be different a place from place or market from market? And how, what is the impact on Baosteel?
Thank you Mr. [indiscernible] for your question. Exactly this is a very heated topic recently. We are in this industry and we can feel that for China, it’s a steel making industry. Oversupply has been chewed since several years ago. So starting from 2020, our government has been saying that we need to control the output, control the capacity.
And during the past few years, you can see that in terms of the investment, new investment it has been squeezed. So market has a role to play and also the industry government has a role to play and it aims at quality development of China’s steel making industry. And I think it is necessary to have a new round of plan or planning for the steel output or capacity. So, I think China’s steel making industry will continue to reduce its capacity. This is a trend and it is a trend that has become more and more obvious.
And for the second half of this year, how the policies will look like? For this question, I think, Baosteel was strictly follows government’s requirement to reduce or control the output. This year the policy compared with last year, the total amount does not change very big, just a slightly deduction. But if you look at the data, you realize that, for the first seven month of this year, our steel production was higher, up by 15 million tons.
So throughout the year, if our output is not going to be higher than last year it means in the second half of this year, we have to reduce our production. And I think it will be around 30 million to 40 million tons. And for steel industry I think it’s good news because we want to have a efficient production, where there is need in the market instead of pursuing production for the purpose of production and reduce the cost.
In order to maintain profitability, it is very difficult for a lot of companies. You can see from the data that, Brazil industry breaks even, and it is obvious that, the steel maker industry’s profitability has gone down. The industry does not make money. So for Baoshan, as a whole, this year, actually, at the beginning of this year, we already forecasted the policy trend, i.e., the control of production.
That’s why from the beginning of this year, within our group and we have communicated with local governments of our multiple basis. We sought proactive cooperation, because our capacity is very advanced. So within our group, we purchased some capacity quota. And in some cities or provinces, they have given us very, progressive policy coordination. So they can give some of the capacity to Baosteel.
So I will say that, with regards to Baosteel’s total production or capacity, the impact is not that big because we are market driven, demand driven. So we only accept contracts or orders in a reasonable way to maintain a reasonable production pace to do our job well. Because the market has changed, the market is changing very quickly. We do not play back. We are consistent regarding our operation principles. We only accept the profitable orders to arrange our production pace.
Thank you [indiscernible] for your question and thank you Xiaodi for your answer. Next, let’s invite from [indiscernible].
My question goes to Mr. Zou for the silicon steel. We know that the price this year has dropped and the reasons and the forecast well, what do you think are the reasons and what is your forecast and what is your planning regarding the silicon steel?
So first of all, the price decline. Why? The reasons, I think the reasons lie and the supplies, because there are so many SEO companies who have business in the silicon steel and we watch news very often. We see this company says we will invest in the silicon steel production lines to produce silicon steel. And a lot of production lines have been put into operation. As a result, you have increased in supply, but the supply outgrowths the demand, so you have over capacity.
As a result, so low and mid specs can see oversupply issue more obviously. I think not only it is true to Baosteel, but also for other steel makers. For this like there’s low spec, it is very difficult for them to make money, because there’s over supply. This is the main reason but for high-end products, especially for high efficient silicon steel. We have the product and the profitability is very good.
So for a high-end oriented, so you can steel, the prices are high, the profitability is good, so the problem lies in the mid end and low end over capacity. These do a lot of problems as to the plans from Baosteel for silicon steel. This is our second strategic category. So we have been talking about the plan for silicon steel. Many years ago and a lot of plans were made many years ago and now we are in the implementation stage.
So without the plans we couldn’t have made so good profitability this year. Speaking of the future, our strategy for silicon steel, we still need to be number one of silicon steel worldwide. What does number one mean? Of course, one thing is production and scale. We need to be number one. We are already number one. We have the second thing that is the structure of the products. We need to have the most optimized structure of the product.
As I have mentioned, there’s fierce competition in the mid end and low end products. So we need to focus on the premium, high-end oriented silicon steel. And so you need to have the best technologies. Every year, we have some first launch products in silicon steel worldwide. So our processes, our machineries are priority technologies.
So, we are number one in technologies too. As to the specific plans like the oriented silicon steel, this year the production is 1 million and the capacity is also 1 million. Next year, the second half of next year, it will be 1.16 million tons capacity and some of the production lines will be put into operation in the middle next year. So we have Shenzhen base. Each will have like 80,000 tons increase in terms of silicon steel. In 2022, the volume will be 1.6 million.
And among this amount with our high-end product, 0.23 millimeter below products. So only few companies in the industry can produce these kind of products. So we have a big volume but also great competitiveness. So For these kind of silicon, high-end silicon steel, we also make some optimization portions base operation, they have half a million tons of steel to be made into the new energy vehicle in the future and these are high emission silicon steel. So these are very high-end products. Now they already have margins and in the end of the year they’re going to make a big profit. And for the Shenzhen base, it’s very similar to Baoshan base.
By the end of June this year in Shenzhen base, we started at the beginning of the operation ceremony, so, they’re also producing the high emission silicon steel to be used in a high, new energy vehicles. We also have some other future plan based on that. So they are all very high-end products, very good with very good profitability. And therefore for the high-end silicon steel, we need to adjust the structures. Therefore we produce more the high emission steel rather than the small and mid emission steels. So we are gradually implementing these plans and our purpose is to, in the silicon steel field, we will continue to maintain our very good competitiveness.
Thank you [indiscernible] for your question and thank for director Jixin for your answer. So now we have another final 15 minutes so we can open the floor with two more questions. So want that security then more please answer, ask a question.
Thank you Zhang and also their leaders for sharing. I want to ask you a question just now from the leaders sharing. We can see company’s future in terms of improving the product structure. It’s very committed. So I want to ask Mr. Wu, so according to the profitability of different products, so what are the top steel products for your company that have the highest profitability right now? What’s the ranking?
Well, from the big type of products type, silicon steel definitely number one, and now auto steel and also a thick steel and then steel pipeline. So, these are the ranking for now. As for the big type, there can be different smaller types that have a big difference for silicon steel, they have some type that have a big profit and some also make a loss. In the beginning of this year, for example, those low emissions steel make a loss. And also for the auto steel, they are the same. For some of the products have a lot of demand, for example, electric plating steel product. They have a lot of demands.
But if you look at the general products, those that other companies can also make then their profitability is low. So the difference is big among different types of products. But the good thing is that, for Baosteel, we have a very advantageous and a very developed system, so that our detailed profitability of every product can actually be estimated. And so with all this kind of information, we can really adjust very rapidly to the market changes. And then we can also optimize our structural organization. So since the industry is experiencing difficulties, so we always try to make a very good saving of course, every month, there can be some changes, and we will try to respond to that quickly. So in terms of production and sales and R&D, we can have integrated efforts to achieve our goal.
Thank you for your answer.
So, I think this is in line with the performance introduction from Mr. Zou that is our differentiated strategy.
Okay, last question for the CICC completion.
So, I’m from [indiscernible] Security. My name is [indiscernible]. I want to ask a similar question. So I think that this year’s steel company are all transforming and upgrading the Company. So, this is much in line with the ability of different companies. So for your company, you have also made some progress in the product upgrading. So, I want to ask you for those profits, a good profit steel, such as a new energy steel and a silicon steel and a mid-end and fixed steel, a high energy steel, what is your future plan for the Company for these products? Thank you.
Thank you for your question a very good one. So just like our President mentioned, products and technologies are the key for any company. So for our company, in the industry competition for us to maintain the number one position in the market, we really rely on products and technologies. For what you have mentioned, all these products layout, whether we have the consideration or not and what kind of considerations we have given, yes, of course, we have given all these informations and we have made the related layout and optimization. And these are all the things that we have been always thinking about. And this is the key focus of our work.
So you mentioned the silicon steel, in the 2020, by the end of April, at that time, we set up the silicon steel business unit. So then by 2030, how should we develop, we already thought very carefully in our planning at that time. Therefore, for the production volume and also for others, we all developed according to the plan. And in 2019, when we set up silicon steel business unit, before that, our production was less than 800,000 tons.
And after setting up the BAU, we didn’t invest in new production lines, but with coordination with other bases, now we have reached 1 million tons. And then next year, it will be 1.16 million tons and 2026 1.60 million tons. So these are our high emission silicone steel, which are urgently needed by the market and also for the super high temperature pressure and electrified distributed system for raising the efficiency, we’re all adopted.
And right now, this year there is a very keen competition in terms of high emission silicon steel in the market. So we’ve been working a lot on it. So for the new energy, if your silicon steel has a low end quality, if it’s low end silicon steel then it wouldn’t do. Therefore this year, new energy, for example, wind power and affordable tank, et cetera, the steel to be used in a converter need to increase its grading.
And if we can do so, it can bring us a lot of profit. And with all this, whether in future we can be more competitive, we have looked into these issues ourselves as well. So for our high strength silicon steel and high emissions silicon steel, they have a very big technological feature. So if you want to mass produce and economically produce this high-end silicon steel, it is not easy.
So you may produce some silicon steel, but you may not make money. So, these other situations of other companies but our company, is different. Some engineer have said proudly that our silicon steel level is much leading at least by 10 years in advance compared to our competitors. Therefore, we’ve done a lot of work about it. For example, our high emission silicon steel layout was set up in 2020. And also we gradually step by step push forward this product development and we have achieved the results beyond our expectation.
The cost competitiveness and the features of the products go beyond way beyond our expectation. Therefore, we are now very confident about it. And talking about the automotive industry, I also mentioned before steel supplied for the auto industry. The auto industry now is having some changes. So the total amount is about 20 million, 30 million tons without much changes but the structure is changing. So the American auto and Japanese auto market amount of volume is decreasing.
And for Baosteel, our original competitiveness is in the joint venture brands. So if this kind of a volume is reducing, then how can we continue to keep the competitiveness of the auto user steel? So internally we need to reshape the ability of the auto steel plate, because we have already felt this kind of challenges and potential risks. Therefore we propose some requirements, for example, customer oriented and quality focused and also market share oriented, et cetera.
So we want to satisfy the needs of a joint venture companies and also for the self-owned brand companies. And for these new brand companies, we also try to satisfy their needs. So from DDS quality, cost, perspective, and R&D distribution service aspects as well as the low carbon in co-DDS, we try to satisfy our customers’ needs a full round, in a full round way.
So I think that this proved to be successful. So this morning we had the auto sector meeting and we are now more and more confident about it. So this year the auto sector sales can be unprecedentedly high. And also we are optimizing the structure as well. So we want to adjust our structures. We have the high volume and also for the electric platting steel. And the electric platting zinc amount should all be increased.
For example, electric plate, zinc plate has a big amount. And also we try to also start operation in some products that can provide for the new emergent industry. So, we can very well prepare for the changes in the auto industry rapidly. Another thing is we have very stable quality, which is our advantage. Also, we have some other brands. For example, some tie two products for example, some colorful plating products.
These are our special products too. And we want to add those three more production line with the capacity of about 600,000 tons. So if it’s one minute, it’s already a very big production, because our products are very competitive. Just now you also talked about a seamless steel pipeline. So for this kind of a steel pipe, we have rich experience accumulated and we’ve met some development bottleneck as well.
When I talked about M&A, I touched upon this topic, but I didn’t go too deep in it. But we are going to really develop this kind of seamless steel pipe and to satisfy the development of new energy sectors. And in terms of thick plate, we will fully develop the current production line. We have set up a sick plate business unit two years ago, and now we can see very good integrated effects between different views. So for thick plate, we set up the view and we want to see clearly where is our market. So we have the domestic and foreign market.
And also in China, our production lines and our product type, all ranked number one in China. And also overseas we have the bidding of the products. So you can see in terms of a thick plate, it tastes doing well this year. So we are focusing on multiple products development at the same time. And we are studying on other possible types of products as well. So, we need the technologies and the talents to do the things well. And these are actually the BAOS steels advantages. So we have these kind of advantages. We have very excellent R&D team and we have very good technologies. So we are very confident to do whatever we want to do.
So during lunch today, we were still having the discussion about the auto sector products. How do we lay out for the products for the auto industry? So we consider all these issues in our daily work and we can rapidly implement all that with good effects. So I think for our company in the future, more competitive and market can still, maintain a good growth momentum. It is because we have these kind of products and technologies.
So, thank you, [indiscernible] for your question while you have asked a very good question. So Mr. Jixin was very passionate in answering your question.
The time has flies in a — this is the end of this Q&A session, but we can continue to have communication with your open online question raising platform, and you can give us your questions in the website. And after today’s result release meeting, you can also interact with us in the investor hotline or the Shanghai Stock Exchange Interactive Platform or the Shenzhen Platform.
So after the presentation and the Q&A part, I think now you have a clear understanding of Baosteel and this industry and I believe that despite the environment is very challenging…
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