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Longhai Steel, Inc. (LGHS) Finds Success with 3-Pronged Growth Strategy

Longhai Steel, one of China’s leading producers of high-quality steel wire, has based its continuous revenue growth on a 3-pronged approach: Expanded Production, Acquisitions, Economy of Scale. It’s a strategy that has worked well for the rapidly growing company, with annual revenues increasing 60% from 2009 to 2011. Part of this is due to the company’s unbeatable location. Hebei province, which surrounds Beijing, is China’s biggest steel producing area, with all of the distributors and infrastructure in place for any size operation, and close to the nation’s construction activity. But Longhai’s multi-pronged growth plan has provided a secure diversity for expansion, avoiding growth that is too narrowly based.

Expanded Production – Longhai recently began production from a newly constructed wire plant adjacent to its original plant. The new factory provides a capacity of 600,000 metric tons, increasing annual production capacity by 67% to 1.5 million metric tons. The new wire plant is designed to produce a higher grade wire than Longhai’s current products, producing wire from carbon steel, cold heading steel, and welding rod steel in diameters from 5.5 to 18 millimeters. The company has also acquired land adjacent to the two existing plants for addition of a third production facility.

Acquisitions – Longhai intends to continue identifying modern, high-quality steel producers for acquisition at low valuations. The rapid growth of the industry in China has resulted in many small producers in the Hebei area that do not have the capital to expand. The government is actively supporting steel industry consolidation, and Longhai plans to expand its operations and sales by acquiring producers with production facilities near its current facilities.

Economy of Scale – By expanding through organic growth, acquisitions, and modernizations, Longhai expects to increase its operating leverage, production, and sales, as well as have a greater influence on pricing and costs.

For additional information, visit the company’s website at

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