Wuhan Iron & Steel Group, Angang New Co and rival Chinese mills are expanding overseas and turning to specialty products to battle overcapacity in China.

Wuhan Steel is in talks to build plants or buy rivals in other countries, General Manager Deng Qilin said in Beijing. Angang may develop its specialty steel product business, General Manager Zhang Xiaogang said.

Overcapacity and rising costs depressed the average profit margins of Chinese steelmakers to just 3.5 percent in 2010, the lowest of any industry, according to the government. The building program laid out in the 12th Five-Year Plan period (2011-2015) will need more high-grade alloy for railroads and nuclear power plants, China Iron and Steel Association said.

"Every steelmaker is trying to diversify their business," said Hu Yanping, a Beijing-based analyst with the researcher UC361.com. "But they aren't all going to succeed."

Wuhan Iron & Steel Co, the listed unit of Wuhan Steel, has fallen 30 percent in Shanghai trading in the past year, compared with a 1.7 percent drop in the benchmark Shanghai Composite Index. Angang Steel Co is down 34 percent in the past year in Shenzhen.

The government plans to invest 800 billion yuan ($121 billion) to build 6,000 kilometers of high-speed rail lines by 2012.

Baosteel Group Corp will consider building plants in developing regions outside of China, Baosteel's Chairman Xu Lejiang said on Thursday.

Delong Holdings Ltd, a Singapore-listed Chinese steelmaker, is looking to build plants in Mexico and other countries, Delong's Chairman Ding Liguo said. Angang signed an agreement in 2010 to jointly build a $168 million reinforcing-bar plant in Mississippi in the United States.

Building plants overseas is "a way to reduce global steel trade frictions," said Xu Xiangchun, chief analyst with Mysteel Research Institute. Also, it "will be welcomed as a boost to local employment and taxes."

The nation's steelmakers, including Angang and Wuhan Steel, focus primarily on the production of ordinary steel. By moving into specialty products, the larger mills will compete against companies such as Xining Special Steel Co and Shandong Jinling Mining Co.

Xining Special had a gross profit margin of 14.65 percent in 2009, compared with 9.68 percent for Baoshan Iron & Steel Co, according to data compiled by Bloomberg.