Shanghai Baosteel Group Corp, the world's second-largest steelmaker by output, is planning to set up a beverage can factory in Vietnam, in a move to utilize increasing industry demand in the country.

The factory will be located in the Singapore Industrial Park, 18 kilometers from Vietnam's capital, Hanoi. Baosteel has already booked a plot of land in the park, a senior manager at the steelmaker's packaging unit told China Daily on Tuesday.

Two-piece steel beverage cans made at the factory, Baosteel's first outside China, will be sold in southern Vietnam and southeastern Asian countries, including Thailand, said the manager, who declined to be named because the matter has not been made public.

"The reason we choose Vietnam for the first stage of our overseas expansion is that we have noticed that demand for beverage cans has been growing fast there," he said.

Baosteel is negotiating with the Vietnamese government over taxes and tariffs, and construction may start as early as this year if the talks go well, he added. "The major problem is the tariff. We want a lower tariff because most of the machinery used in the factory will be imported," he said.

The manager refused to reveal figures for investment and annual capacity because the project is "still in an early phase". But he said the factory will be about the same size as the company's can-producing facilities in China.

Baosteel, which supplies two-piece steel beverage cans to PepsiCo Inc and the Coca Cola Co, four beverage can factories in China, with total annual capacity of 3.5 billion cans.

The company's packaging business has been growing quickly. In August, the company established its packaging unit, Baosteel Packaging Co Ltd, in a bid to extend its lead in China's packaging industry. The unit has 1 billion yuan ($152.5 million) in assets.

"Investment in the domestic market is set to increase," said the manager. At present, Baosteel is the only domestic company that is capable of making two-piece steel cans, which are degradable and cost less to produce than aluminum cans.

Two-piece steel cans now account for over 20 percent of China's packaging-can market, according to figures released by Baosteel.

The steelmaker said in October that it will become China's biggest beverage can maker by 2015, when the annual capacity of two-piece steel cans will reach 10 billion and sales will top 10 billion yuan.