China's top steelmakers will merge to create the world's second-largest steel entity, it was announced yesterday.
Baoshan Iron and Steel Co, Baosteel's listed company, will issue new stocks to the shareholders of Wuhan Iron and Steel Group to complete the merger, the two state-owned companies said.
Baoshan is ranked fifth in terms of world production capacity. Wuhan is 11th. After the takeover, Wuhan Steel will delist from the A-share market on the Shanghai Stock Exchange.
Baosteel Group is China's second-largest steelmaker, and along with Wuhan Steel will have a joint annual production capacity of more than 60 million tons, making it the second-biggest producer behind ArcelorMittal.
The new entity will be called China Baowu Iron and Steel Group. China Business News reported yesterday that the state asset watchdog had given its nod and submitted the merger plan to the State Council for final approval. Once approved, the market value of the new group will surpass 108.5 billion yuan (US$16.3 billion), and its total assets will be worth 700 billion yuan.
The merger is in line with Chinese government's efforts to overhaul its steel sector, upgrade quality and cut overcapacity. Chi Jingdong, deputy director of China Iron and Steel Association, said the central government wants to consolidate 60-70 percent of the nation's steel output into 10 giant groups to enhance their competitiveness.
Chinese steel demand slumped as the global industry has been battling overcapacity. The crisis has seen manufacturers in Asia, Europe and the US suffer huge losses and led to accusations of dumping.
Shanghai-based Baosteel's net profit plummeted 83 percent to 1 billion yuan 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 Steel was "merely the beginning" of more such acquisitions in China's steel industry.
"Restructuring in China's steel industry is the trend and it's an unstoppable one," Chen Bingkun, an analyst at Minmetals and Jingyi Futures, told AFP.
Restructuring of another two Chinese steel giants, both based in northeastern province of Liaoning, Ansteel and Benxi Steel Group, is next on the agenda, Shanghai Securities News reported yesterday.
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.
"China is now trying to cut down its steel production through policy. Restructuring is another way. Once the merged giants form a monopoly, it will start to control production," said Minmetals' Chen.
"The result of this restructuring is to integrate China's steel industry and pave the way for China to export its steel capacity."
However, another analyst did not see China having an edge over global competitors like ArcelorMittal and US Steel.
"I don't think these mergers will be able to change the current market status of the world's steel industry," said Qin Jiawei, a Hangzhou-based analyst with Xinhu Futures. "China's high-end steel products don't have the competitiveness in the international markets. It's not the size of the company that counts. You cannot change the global steel market by just adding them up."
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