China plans to merge the main steel producers

China, the largest steel producer in the world, is considering the merger of steel producers. What would consolidate the main major producers into two giants. One located in the north and the other in the south of the country.

Hebei Iron & Steel Group, the country’s largest rolling mill by output, and Shougang Group will form Northern China Steel Group, while No. 2 producer Shanghai Baosteel Group Corp and Wuhan Iron & Steel Group Corp will merge under the name Southern China Steel Group, said sources under the protection of anonymity, because the information is confidential. Hebei’s shares rose by 2.8%, while Shougang’s by 3.7%, following the release of the information.

Representatives of the State Asset Supervision and Administration Commission, Baosteel Group, Hebei, Shougang and Wuhan Iron & Steel (the four targeted companies) refused to provide an official answer.

The merger of Chinese steel producers

These possible mergers would give Chinese steelmakers the ability to compete with other global giants such as ArcelorMittal and boost the Chinese government’s efforts to reduce excess capacity as part of its efforts to overhaul an inefficient state sector.

The smaller steel companies could later be absorbed by the two new groups. Since these are established, although nothing has been decided.

The plan „will contribute to accelerating the elimination of excess steel capacities”. Helen Lau, analyst at Argonaut Securities Asia Ltd, said from Hong Kong. „It will also stimulate competitiveness and strengthen customer bases and leave little room for smaller non-competitive mills.”

„Even though China’s steel production has peaked, the domestic market remains saturated.” Chen Derong, director general of Baosteel Group, said at a conference in May. China is looking to remove the surplus, with exports reaching a record level. China’s steel production capacity reached a record high of 1.2 billion tons, according to the China Iron & Steel Association. The Beijing government has committed to reduce steel production capacity by 150 million tons. That is until 2020.

Article source: http://www.bloomberg.com/news/articles/2016-08-01/china-said-to-consider-mergers-to-create-two-state-steel-giants-irbltcmf