HBIS' acquisition in Serbia shows expansion of steel footprint can transform lives

Two years ago, Radanovic Miroslav and his colleagues, all employees of Zelezara Smederevo, Serbia's only steel plant, heard a certain HBIS Group Co Ltd might buy out their employer. Intrigued suitably, they consulted the internet to find out more about HBIS.

What they found out about the Shijiazhuang, Hebei province-based conglomerate surprised them. "We were surprised to know HBIS was the world's second-largest steel material producer. We were relieved. When US Steel bought Smederevo steel plant in 2003, the American company was the fifth-largest steel company. So, to know that the potential buyer is No 2 was very reassuring as it raised hopes of stability and a bright future," said Miroslav, director of purchases of steel scrap and secondary raw materials at the Serbian plant.

He has been serving the company for the last 15 years. He has vivid memories of how the Smederevo mill's troubles deepened with losses in 2009. US Steel sold the mill to the Serbian government for the symbolic sum of $1 in 2012.

The producer of steel, hot and cold rolled products and tin plate continued making losses until HBIS bought it out for 46 million euros ($53 million) in April 2016.

Six months after the acquisition, the loss-making Smederevo, whose current name is HBIS Group Serbia Iron & Steel, returned to the black and emerged Serbia's second-largest exporter. It produced 1.4 million metric tons of steel in 2017, with its profit hitting a record 200 million yuan ($29 million).

"The uncertainty we experienced when the company was under the (Serbian) government's ownership has completely disappeared now," said Miroslav. "We can plan our activities much more precisely and much more in advance. We are in a stronger position to negotiate, especially with suppliers worldwide. They all know that HBIS is behind us."

The better-than-expected financial performance can be attributed to a daring decision by HBIS to persuade the previous management team to start running a second blast furnace, instead of only one, said Song Sihai, executive director of HBIS Group Serbia Iron & Steel.

"Based on our research and analysis of the global market back then, we believed that the iron and steel market would bottom out in 2016 and then rebound. So we decided to increase the production capacity of the Serbian plant," Song said.

Thanks to that decision, which was followed by a technology upgrade, the management team now expect the plant's production capacity to increase to 1.8 million tons this year. They hope to realize a target profit of $30 million.

Apart from keeping more than 5,000 Serbian workers employed, HBIS' takeover also boosted local economic growth, led to a 7 percent wage raise, and contributed to a rise in birth rate.

Jasna Avramovic, mayor of Smederevo, said revenues of the city government rose from 2 million euros in 2012 to 5 million euros in 2017, and most of the growth came from HBIS Serbia. The number of births in Smederevo also increased from about 1,500 annually in the past few years to about 2,100 last year.