China plans to create world’s second-largest steelmaker


22nd September 2016

Beijing (Caixin) – China’s plan to create the world’s second-largest steelmaker faces an uphill battle because of its sheer complexity. Yet the government is determined to force steel capacity reductions through additional consolidation, according to several individuals with knowledge of the matter.
The proposed merger of China’s second-largest and most profitable steelmaker, Shanghai-based Baosteel Group, with its money-losing smaller rival, Wuhan Iron & Steel Group (WISCO), will create an industry behemoth.
But it may be just the beginning of a new wave of government-backed consolidation in the fragmented and inefficient steel industry, according to sources close to regulators. It also looks to be a first step in Beijing’s pledge to cut excess capacity, which trading partners blame for the global steel glut.
In 2015, the sector has been using just two-thirds of its capacity, according to the China Iron and Steel Association. China’s steel profits have been shrinking since 2012, and last year the industry’s profit margin fell to minus 2 percent. About half of the major steel companies reported losses.
A possible Baosteel-WISCO merger of the two state-own steel companies was first made public in June. It won approval in late August from the State-Owned Assets Supervision and Administration Commission (SASAC), which oversees government enterprises, according to people close to the matter. Final details of the plan are to be hammered …

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