A worker monitors a furnace at an Anshan Iron and Steel Group plant in Liaoning province. The steelmaker expects the Anyang acquisition to help boost its product portfolio. [China Daily]

Steel industry consolidation moves gather pace in China

Anshan Iron & Steel Group, is likely to take over Anyang Iron & Steel Group, the biggest steel mill in Henan province, as part of an industry restructuring in central China.

Top executives from both sides have reached a consensus on how to restructure the company, according to a source.

"They have agreed on how to run the company after the takeover, but are not ready to make the plan public," said the source. Earlier media reports said five State-owned enterprises - Anshan Steel, Sinosteel, Wuhan Iron & Steel Group, Baosteel and China Minmetals were in talks with Anyang Steel on a possible takeover.

Liu Jingyuan, a spokesman for Anshan Steel, however, said he was not aware of the development.

Sinosteel, China's largest iron ore trader, and Minmetals, China's largest metal trader, had denied plans to take over Anyang Steel. Wuhan Steel and Baosteel could not be reached immediately for comment.

"For large mills, Anyang Steel is a tempting target, with enormous advantages in the local market," said Xu Xiangchun, chief analyst with consulting institute Mysteel.

Xu said big steel mills in China are expanding capacity in line with the government's consolidation plan for the fragmented sector.

The central government came out with a stimulus package for the steel industry in January 2009, and encouraged big mills to merge with rivals to create cohesive steel groups. The government also said it would strictly control steel making capacity as oversupply problems have weighed on prices and squeezed profit margins.

With the government planning to withhold approval for new projects, steel mills have no other option but to join forces, Xu said. Anyang, the biggest steelmaker in Henan province, is seen as a prime target for large steelmakers, he said.

Henan State-owned Assets Supervision & Administration Commission (SASAC) had earlier said it was in contact with several large State-owned enterprises regarding Anyang Steel.

"Anyang has fewer advantages in terms of transportation as it is located in the central region, and is also being squeezed by steel mills from neighboring Hebei province," said Xu, adding that the backing of a large steel mill would give Anyang more room to develop.