The Baosteel-WISCO alliance represents an important step in the consolidation of the steel industry

The landmark merger of Baosteel Group and Wuhan Iron and Steel Group (WISCO) will contribute to the rapid consolidation of China’s steel industry, bringing important reforms. But Beijing’s efforts to merge the nation’s largest steel mills will be effective in reducing excess capacity only if low steel prices and enforcement of industry regulatory barriers persist.

„We do not believe that such a merger will have an immediate impact on the elimination of overcapacity in the sector” Fitch Ratings director Asia Pacific. „Small steel producers in China do not compete with Baosteel and WISCO, which produce high-end steel products.”

Analyst Jack Shang said that although news of mergers and capacity reductions are encouraging short-term investors in China’s steel sector. He is cautious about the outlook. Because the government’s concern about non-performing loans remains a stumbling block. For large-scale closures of rolling mills.

Consolidation of China’s steel industry

China’s steel industry has 1.2 billion tons of excess annual capacity. The average operation of rolling mills dropped from 89 percent in 2006 to 67 percent last year. According to the World Steel Association.

China’s steel demand is on a downward trend. Since it recorded a growth rate of 18 percent in 2005. Since 2014, China’s annual steel consumption has contracted to a single digit.

The capacity reduction is part of President Xi Jinping’s reform. Aiming to instill market discipline. So that they can withstand a slower annual economic growth.

SWS Research analyst Meng Yeyong believes that the merger of Baosteel and WISCO signals a change in Beijing’s approach to the consolidation of the steel industry. And it could portend further mergers between industry leaders, as competitiveness is expected to increase.

„By merging some of the strongest players in the industry. Whose production footprints are complementary from a geographical point of view, the competitiveness of the main producers will be increased”, said Meng.

Article source: http://www.hellenicshippingnews.com/baosteel-wisco-marriage-sets-stage-for-faster-steel-industry-consolidation/