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Beijing Is Building Mega Steel Companies in China

On February 7, the Ministry of Industry and Information Technology and three other departments in China issued a “Guidance on Promoting the High-Quality Development of the Iron and Steel Industry, hereinafter referred to as the Guidance. It clearly encourages leading enterprises in the industry to implement mergers and reorganizations to build several world-class mega steel enterprise groups.

The Guidance makes concrete arrangements for steel industry mergers and reorganizations. One to two specialized pilot enterprises will be formed relying on the leading enterprises in stainless steel, special steel, seamless steel tubes, castings and other fields, respectively. It encourages cross-regional, cross-ownership mergers and reorganizations of steel enterprises to change the so called “small and scattered” situation in this industry in some regions, to enhance the endogenous power of enterprises’ development. The independent hot rolling and independent coking enterprises in Beijing, Tianjin, Hebei and surrounding areas will be led in an orderly manner to participate in the merger and reorganization of steel enterprises. The Guidance mentioned that those enterprises that have completed the mergers and reorganizations will be given capacity replacement policy support during their smelting project construction. The Guidance also encourages Chinese financial institutions actively to offer integrated financial services to those steel enterprises which implement mergers and reorganizations, layout adjustments, transformation and upgrading based on risk-controlled, commercially sustainable principles.

Li Xinchuang, chief engineer of the Metallurgical Industry Planning and Research Institute, said that the concentration in the domestic steel industry is still less than 40 percent. China’s steel industry has now ushered in an important window of mergers and reorganizations and a period of historic opportunity. Given the background that the output of the iron and steel industry has entered the peak platform area, it is the key to the healthy and high-quality development of the industry to intensify the merger and reorganization of iron and steel and improve the concentration of the industry.

Cross-regional and cross-ownership mergers and acquisitions 

Mergers and reorganizations are one of the key tasks of the steel industry this year. Peng Huagang, the Secretary-General of the State-owned Assets Supervision and Administration Commission, clearly stated at a press conference of the State Council Information Office in January this year that the restructuring and integration of steel and other fields will be steadily promoted and new central enterprise groups will be established in a timely manner in related fields.

Chen Derong, chairman of the China Iron and Steel Association and chairman of China Baowu, said that China’s steel industry has broken the “small and scattered” situation, where state-owned steel enterprises or private steel enterprises are promoting mergers and reorganizations. As a group of more than 50 million tons of ultra-large steel enterprises are rising, the concentration in the steel industry will be further enhanced.

Wang Guoqing, director of the Lange Steel Research Center, located in Beijing and established in 2005 as the No.1 steel information research center in China, told China Business News that, in the future, the merger and reorganizations mode in the steel industry will continue to change the effect of restructuring and will also be more prominent; the industrial concentration is to be effectively enhanced. Therefore, the iron and steel industry is bound to speed up its transformation and upgrading, speed up the pace of mergers and reorganizations, eliminate outdated iron and steel enterprises that do not meet environmental protection standards, vigorously develop a circular economy, and promote the overall development of the iron and steel industry.

The concentration in the steel industry continues to increase 

As early as in September 2016, the State Council issued the “Guiding Opinions on Promoting the Merger, Restructuring and Disposing of Zombie Enterprises in the Steel Industry,” which clearly stated that, by 2025, 60 percent to 70 percent of the output of China’s steel industry will be concentrated in about 10 large groups, of which there are three to four 80-million-ton steel groups, six to eight 40-million-ton steel groups plus some specialized steel groups.

Aiming toward this general goal, the steel industry mergers and reorganizations will be divided into three steps: the first step will focus on reducing production capacity by 2018 and clearing what should be cleared. At the same time, it will demonstrate the next merger and reorganization, such as the merger and reorganization of Baosteel and Wuhan Iron and Steel. The second step is to improve the merger and reorganization policy from 2018 to 2020. The third step is to promote the merger and reorganization of the steel industry on a large scale from 2020 to 2025.

Since 2021, the merger and reorganization of the steel industry has accelerated significantly. Anshan Iron and Steel merged with and reorganized Benxi Iron and Steel to form the second largest steel group in China and the third largest steel group in the world. This further promoted the formation of a new industrial development pattern; Baowu reorganized Kun Steel and signed an agreement with the Shandong Provincial State-owned Assets Supervision and Administration Commission to reorganize the Shan Steel Group. The reorganization of Baowu’s capacity scale is expected to reach 150 million tons.  Shasteel mixed reform Anyang Huacheng and five other enterprises. Puyang Steel reorganized Xing Steel, and so on.

At the same time, the level of the steel industry chain and the supply chain have been further improved. CITIC Special Steel has strengthened cooperation with upstream and downstream enterprises to enhance the overall competitive advantage of the industrial chain. Jiu Steel has accelerated the construction of a modern industrial system through a series of measures such as coordination to stabilize the chain, project extension, technology strengthening, and investment promotion.

According to the data released by the China Iron and Steel Association, the pace of mergers and reorganizations of Chinese iron and steel enterprises has accelerated, which has promoted the further improvement of industrial concentration. At the end of 2021, the steel output of the top 10 and top 20 enterprises in steel production accounted for 40.39 percent and 54.85 percent respectively. of the national steel output, , an increase of 2.99 and 3.26 percentage points over the same period of the previous year.

Source: China News Service, February 8, 2022