Steel giant China Shougang Group will build a 1.8 billion ringgit ($580 million) steel mill together with a Malaysian company in the Southeast Asian country, the two partners said Monday.

The investment marks Shougang's first steel mill outside China, according to a press release. The company already has an iron ore mining company in South America.

"We see tremendous potential in the steel mill industry in Malaysia, and we are very excited as this is Shougang's first steel mill investment outside of China," Shougang chairman Zhu Jimin was quoted in the statement.

According to the joint release, Shougang and Malaysia's Hiap Teck Venture Berhad have formed Eastern Steel to build the mill in eastern Terengganu state. Shougang has a 40 percent stake in Eastern Steel.

Work started Monday, the statement said. The mill is expected to be able to make 700,000 metric tonnes of steel products a year once the first phase costing 750 million ringgit is completed by mid-2013.

An additional 1.05 billion ringgit will then be invested to raise production capacity to 1.5 million metric tonnes per year, the statement said.

Shougang is a 2011 Fortune Global 500 company with an annual crude steel output of more than 30 million metric tonnes.

The statement said steel demand increased in Southeast Asia last year with Malaysia producing 29 percent of all the regional crude steel.