Steel­mak­ers closer to cre­at­ing mega mill

Baos­teel to merge with Wuhan Iron & Steel in key part of plan to con­sol­i­date sec­tor, cut over­ca­pac­ity

China Daily (USA) - - BUSINESS - Du­Juan con­trib­uted to this story By YANG ZIMAN yangz­i­man@chi­nadaily.com.cn

Two of China’s big­gest steel­mak­ers agreed to merge their listed units, mov­ing a step closer to a union that would cre­ate the world’s sec­ond-big­gest mill.

The pub­licly traded arm of Shanghai Baos­teel Group Corp, China’s largest steel com­pany, will swap shares with the listed unit of Wuhan Iron & Steel Group Corp, China’s sixth-largest steel­maker, the smaller com­pany said in a state­ment on Tues­day.

The par­ent firms re­main in talks about re­struc­tur­ing, Wuhan Iron& Steel said, with­out elab­o­rat­ing.

The plan is part of the govern­ment’s push to con­sol­i­date the steel in­dus­try to com­bat over­ca­pac­ity.

The merger of Baos­teel and Wuhan Iron & Steel is a ma­jor move in the tran­si­tion from low-end sup­ply to high qual­ity man­u­fac­tur­ing, said Li Xinchuang, pres­i­dent of the China Met­al­lur­gi­cal In­dus­try Plan­ning and Re­search In­sti­tute.

“The steel in­dus­try is a sec­tor play­ing a ma­jor role in China’s ca­pac­ity down­siz­ing. Through the merger, the two com­pa­nies will draw on each other’s re­spec­tive strengths,” said Li.

Baos­teel has its pres­ence in the Yangtze Delta Re­gion, the Pearl River Delta Re­gion and the Xin­jiang Uygur au­ton­o­mous re­gion. Wuhan Iron and Steel has its ma­jor bases in Hubei and Yun­nan prov­inces, and the Guangxi Zhuang au­ton­o­mous re­gion.

The com­bi­na­tion of the two com­pa­nies will con­nect their scat­tered pro­duc­tion bases into one or­ganic whole, said Li.

Ac­cord­ing to a re­port by Ever­bright Se­cu­ri­ties, the merger of Baos­teel and Wuhan Iron& Steel will usher in a pe­riod of more ra­tio­nal de­vel­op­ment in China’s steel in­dus­try.

The re­port said that Sta­te­owned en­ter­prises ac­count for 46 per­cent of China’s crude steel out­put, but their losses take up more than 90 per­cent of the to­tal.

Baos­teel is the world’s fifth­largest steel com­pany by out­put. It achieved net prof­its of 1.8 bil­lion yuan ($269.9 mil­lion) in 2015, down 78 per­cent year-onyear. Wuhan Iron & Steel reg­is­tered losses of 7.5 bil­lion yuan last year.

Wang Guo­qing, di­rec­tor of Lange Steel In­for­ma­tion Cen­ter, an in­dus­trial con­sul­tancy in Bei­jing, said that the merger of the two com­pa­nies will bring down pro­duc­tion costs.

“Both Baos­teel and Wuhan Iron & Steel have fac­to­ries in ur­ban ar­eas, which con­trib­utes to in­creased traf­fic jams and pol­lu­tion. As a re­sult, they will be moved else­where sooner or later. As one group, if they are to re­lo­cate the fac­to­ries to places closer to sea ports, or in other words, Baos­teel to Zhan­jiang Port in Guang­dong prov­ince and Wuhan Iron and Steel to Fangcheng Port in the Guangxi Zhuang au­ton­o­mous re­gion, it will greatly re­duce their trans­porta­tion costs,” said Wang.

PRO­VIDED TO CHINA DAILY

A worker takes qual­ity sam­ples of molten iron from a furnace at Wuhan Iron & Steel Group Corp in Wuhan, Hubei prov­ince.

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