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Finance: Steel companies follow global trend

By Wang Ying (China Daily)
Updated: 2008-09-05 09:57

Molten steel is being poured into the steel furnace in Dalian Jinniu Co Ltd, a subsidiary of Dongbei Special Steel Group Co Ltd in this photo taken on July 9, 2008. A recent domestic steel industry merger is a sign of things to come, as the nation's mills try to counter pressure from global steelmakers, an industry analyst said yesterday.[Asianewsphoto]

A recent domestic steel industry merger is a sign of things to come, as the nation's mills try to counter pressure from global steelmakers, an industry analyst said yesterday.

Wuhan Iron and Steel, the nation's fourth largest iron and steel producer, on Wednesday said it will launch a joint-stock venture with Guangxi Liuzhou Iron and Steel.

Wuhan Steel will inject 35.2 billion yuan ($5.15 billion) into the new venture, accounting for 80 percent of its overall registered capital, while Liuzhou Steel will take the remaining 20 percent share, bringing in its current net assets.

The venture, Guangxi Iron and Steel Group, will be located in Nanning, capital of the Guangxi Zhuang autonomous region, and will have registered capital of 44 billion yuan.

The new plant will have an initial annual capacity of 10 million tons of steel products, with an investment of 69.8 billion yuan. The steel mill will ultimately enlarge its capacity to 30 million tons, and total investment will hit 204.9 billion yuan.

The merger is the third consolidation in the domestic steel industry in less than three months.

In June, China's largest steel producer, Baoshan Iron and Steel, joined forces with southern rivals Shaoguan Iron and Steel Group and Guangzhou Iron and Steel Group to set up a joint venture in Guangdong province, with registered capital of 35.9 billion yuan.

Also in June, Tangshan Iron and Steel Group merged with Handan Iron and Steel Group in a bid to become China's largest steelmaker.

Steel is a key sector for China and is linked to sectors including mining, shipping and downstream industries.

The Guangxi steel factory will cater to local demand as well as newly emerging markets in Southeast Asia and China's west, according to Jia Liangqun, executive general manager of industry information provider Mysteel.

In the past five years, China has cruised into the fast lane of steel production. By 2007, China's steel output accounted for 36 percent of total global production. That figure's expected to reach 38 percent this year.

"China's steel industry has gone through the first phase of steel development, in which a local mill develops and expands independently, trying to seize the largest share of the market on their own," Jia said.

"Now, they're shifting focus and seeking merger and acquisition opportunities. By upgrading their industrial structure, they're aiming to solidify and boost their market standing."

And that's the global trend, according to Jia.

"Even an enormous group like BHP Billiton wants to find the opportunity to combine with Rio Tinto."