As part of Beijing’s latest efforts to revamp its flagging steel industry, two of the country’s largest firms will merge to create what specialists predict will be a new entity that could challenge to be the biggest steelmaker in the world.
A joint statement from the two firms said that Baoshan Iron and Steel (Baosteel) will take-over its debt ridden smaller rival Wuhan Iron and Steel in a deal, which was originally proposed as a merger, that has been months in the making. According to the statement, Baosteel will absorb Wuhan by distributing new shares to its investors, pending watchdog approval from Beijing.
It’s estimated the new entity will produce a massive 70 million tonnes of steel every year, a figure that will place them above the current Chinese leader Hebei Iron and Steel. Figures are based on last year’s capacity reports.
The much fragmented Chinese steel industry has been suffering from a steel glut in recent years, and the current consolidation is designed to remedy the issue. Both companies are run by the state, and experts say the push to consolidate will continue.
“No-one can argue that something had to be done about the nonsensical overproduction that has plagued the Chinese steel sector for years,” said a spokesperson at CTI China Renaissance in a note to clients on Thursday.
“Once this goes through it will most certainly be seen as a blueprint for similar merger proposals that are already on the table. Companies that immediately spring to mind are Benxi Steel and Anshan, who have been in talks for a while now,” he added.
The new company is expected to challenge the number one steel producer, Luxembourg-based ArcelorMittal SA, and the challenge facing Baosteel will be how to integrate Wuhan, which has not turned a profit since late 2015.
