Two of China’s top steelmakers yesterday announced plans to merge,creating the world’s second-largest manufacturer of the commodity as markets struggle with a glut caused by Chinese overcapacity.
The world’s second-largest economy is trying to overhaul its lumbering state sector and especially its steel industry, by using mergers and restructuring to cut chronic overproduction and create world-beating mills.
Baosteel Group (寶鋼集團), China’s second-largest steelmaker, is to issue new stock to existing shareholders of Wuhan Iron and Steel Group (武漢鋼鐵) to absorb the other company, the state-owned companies said in separate statements to the Shanghai Stock Exchange, where they are listed.
They did not give further details.
The two firms rank fifth and 11th respectively in world production capacity.
The merger will form a new company called China Baowu Iron and Steel Group (中國寶武鋼鐵), China Business News reported late on Monday, adding that the state asset watchdog had already given the plan the green light and submitted it to the Chinese State Council for final approval.
The combined production capacity of the two firms reached 60.7 million tonnes last year, data from the World Steel Association showed, which would make the new entity the world’s second-biggest producer by capacity — behind ArcelorMittal.
Chinese steel demand has slumped as economic growth slows and the global steel industry is assailed by overcapacity. The crisis has seen manufacturers in Asia, Europe and the US suffer huge losses, and it has led to political rows and accusations of dumping.
Shanghai-based Baosteel’s net profit plummeted 83 percent to 1.0 billion yuan (US$150 million) last year, while Wuhan Steel lost 7.5 billion yuan, compared with a 1.3 billion yuan net profit in 2014.
An analyst said the merger between Baosteel and Wuhan Iron and Steel was “merely the beginning” of more such moves in the Chinese steel industry.
“Restructuring in China’s steel industry is the trend and it’s an unstoppable one,” said Chen Bingkun, an analyst at Minmetals and Jingyi Futures (五礦經易期貨).
The restructuring of another two Chinese steel giants both based in northeastern province of Liaoning — Ansteel (鞍山鋼鐵) and Benxi Steel Group (本溪鋼鐵) — is next on the agenda, the Shanghai Securities News reported yesterday.
It quoted Chi Jingdong (遲京東), vice secretary general of the China Iron and Steel Association.
Ansteel is the world’s seventh-biggest mill and Benxi Steel ranks 21st.
The listed arms of the two groups suspended trading in Shenzhen yesterday pending statements on the report.
Investors in Hong Kong cheered the news, with Ansteel shares jumping 2.81 percent yesterday afternoon.
Analysts said the mergers would help China deal with overcapacity that has long plagued manufacturers.
Beijing has vowed to eliminate 100 to 150 million tonnes of capacity — out of a total of 1.2 billion tonnes — by 2020.
“China is now trying to cut down its steel production through policy and restructuring of the industry is a second way to help. Once the merged giants form a monopoly in the market, it will start to control production,” Chen said.
“The result of this restructuring is to integrate China’s steel industry and pave the way for China to export its steel capacity,” Chen added.
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