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Eric Ng

Baosteel Group, China’s second largest steel maker, and smaller rival Wuhan Iron and Steel Group (often called Wisco) are planning strategic restructuring plans together, which could potentially create an industry giant that would unseat domestic market leader Hebei Iron and Steel Group.
The possible mega-merger of the two Shanghai-listed company majors could also be a significant milestone in Beijing’s plan to consolidate the fragmented domestic steel industry, already suffering from widespread losses and overcapacity.
The two companies have been subject to wide speculation for the past year, since a Baosteel veteran took over as Wisco chairman.
Dozens of Chinese state-owned steel mills have been under growing pressure from the central government to consolidate and eradicate uncompetitive production lines.
But progress so far has been slow due to concerns over mass job losses and lost tax revenues.
Argonaut Securities metals and mining analyst Helen Lau told the Post that industrial mergers are being encouraged.
“Beijing has announced the goal of cutting 45 million tonnes of annual steel capacity, but other than a 17-million-ton target unveiled by the Hebei provincial government, it remains unknown where else shutdowns will happen,” she said.
The merger plan was revealed in separate statements, which said their respective parents were “planning strategic restructuring matters” with each other.
“The proposals have not been decided and would require approval from relevant authorities once they are confirmed,” they said in filings to Shanghai’s stock exchange on Monday, adding share trading had been suspended in both companies and a further update on progress would be issued within five working days.
The largest state-owned industrial mergers so far have been by train makers CNR Corp and CSR Corp in late 2014, and the combining of the container shipping businesses of China Ocean Shipping Group with China Shipping Container Lines, and the absorption of Sinotrans & CSC into the transportation major China Merchants Group, both this year.
Cement makers Sinoma Group and China National Building Materials Group are also planning a possible get-together.
The government’s reform of its SOEs is aimed at bolstering competitiveness and eliminating rivalry in an overall national effort to win more overseas orders.
Baosteel was the world’s fifth largest steel producer last year with annual output of 34.94 million tonnes, while Wisco was the eleventh with output of 25.78 million tonnes, according to the Worldsteel Association.
A full merger would create combined output of 60.72 million tonnes, which would unseat north China-based Hebei Iron and Steel Group as the nation’s largest steel producer.
Hebei Iron and Steel’s output of 47.75 million tonnes trails only the world’s largest producer, Luxembourg-based ArcelorMittal, with 97.14 million tonnes.
Industry observers said with both firms directly administered by the central government and with Wisco headed by a Baosteel veteran, opposition to any possible marriage seems unlikely.
The case of central government-backed Anshan Iron and Steel Group and local government-owned Benxi Iron and Steel Group, has often been cited by analysts as illustrating the barriers to consolidation, however.
Merger could save costs by eliminating redundant facilities, and better redeploying resources in regions where [the two firms] compete for customers
Helen Lau, Argonaut Securities metals and mining analyst
Their combination a decade ago effectively existed in name only, due to the lack of settlement on how to share the burden of job cuts and tax revenue losses.
Wisco’s 52-year-old chairman Ma Guoqiang was elevated from president to the top job a year ago, after joining Wisco two years ago. The Baosteel veteran was made its president in 2009.
Wisco’ former chairman Deng Qilin was put under investigations by the Communist Party’s Central Commission for Discipline Inspection two months after he stepped down.
Shanghai-based Baosteel is one of the Chinese steel industry’s most profitable producers, renown for its focus on high-end products especially for the automobile sector.
It posted a 1.03 billion yuan profit last year, on 230 billion yuan of revenues.
Hubei-based Wuhan Iron and Steel Group reported a profit of 1.7 billion yuan in 2014 on revenue of 146 billion yuan.
Helen Lau, said if Baosteel and Wisco were to merge, they could efficiently save costs by eliminating redundant facilities, and better redeploying resources in regions where they compete for customers.
Both firms are strong in the automobile and electrical steel segments.
Wisco commands half of China’s annual one-million-tonne market for grain-oriented, flat-rolled electrical steel, followed by Baoteel’s 30 per cent share. It ranked 500 in the Fortune Global 500 last year, with Baosteel at 218.
Both have absorbed smaller steel mills in recent years with mixed success removing outdated capacity, efficiency gains and debt restructuring.
Baosteel acquired Xinjiang Uygur autonomous region’s Bayi Iron & Steel and Guangdong’s Shaoguan Iron & Steel, while Wisco absorbed Guangxi’s Liuzhou Iron & Steel, Hubei’s Ezhou Iron & Steel, and Yunnan’s Kunming Iron & Steel.


Baosteel, Wuhan Steel reveal mega-merger plans

A worker stands on a stack of rolled steel, shipped from the Baosteel factory in Shanghai, on a dock at Guangzhou, Guangdong province. Photo: Greg Baker, AP

The Wuhan Iron and Steel Plant where a modernized blast furnace has been built and can produce 22400000 tons of pig iron a year. XINHUA PHOTO N. 121952/0200

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With a combined output of 60.72 million tonnes, new giant could unseat Hebei Iron and Steel Group as nation’s biggest producer
