JFE Steel will partner with China's largest steelmaker to manufacture and sell steel powder used to create car parts, hoping to boost the Japanese company's competitiveness in the Chinese automobile market.

The JFE Holdings unit is the first Japanese steelmaker to bring know-how on production of high-value-added iron powder to China.

The Japanese company recently formed a 50-50 venture with Baosteel Metal, a subsidiary of Chinese industry leader Baowu Steel Group. Beginning in 2018, the joint venture will manufacture premixed iron powders uniformly coated with copper and nickel alloys.

Roughly 109 million yuan ($15.7 million) will be invested to construct a factory on the outskirts of Shanghai that includes equipment to mix alloyed metals with externally procured iron powder. Combining alloys evenly to iron powder requires a high level of technology, and China has relied completely on imports.

Alloyed steel powders are put into molds and used to make automotive items such as transmission gears and engine parts. Though China's automobile market has seen fluctuating demand, it shows promising mid- to long-term growth, with vehicle sales forecast to grow 5% this year. Despite a slower pace since 2016, sales in the world's largest car market are expected to increase in parallel with economic growth.