China to speed up mergers and restructuring among steel companies

China will accelerate mergers among steel companies as well as push forward their restructuring to enhance the industry’s competitiveness, authorities said.

China will accelerate mergers among steel companies as well as push forward their restructuring to enhance the industry’s competitiveness, authorities said.

The National Development and Reform Commission said today that China will make it a priority following the call from the China Iron and Steel Industry Association a day earlier, saying that China needs to address steel industry’s conundrums such as oversupply and high debts.

The move may help to phase out low-efficient plants and crack down illegal production, along with upgrading technologies and deleveraging, said Wang Yingsheng, deputy secretary-general at the association.

China's steel industry has a low concentration, given the output of the top 10 steelmakers only accounts for around 30 percent of the industry’s total – while the 10 largest domestic miners take up over 80 percent of the mining output and 10 largest car makers contributing 88 percent to China’s car making output.

Smaller steel plants has been hurt by low prices partly due to the scattered structure, said Wei Wei, an analyst at Ping’an Securities.

Merging would help steel giants better resist challenges amid market fluctuations while they also need restructuring to cut debts and upgrade technologies, Wang said.

China aims to reduce the industry’s debt-to-assets ratio to below 60 percent in three to five years, down from 60 to 70 percent last year, he added.

Meanwhile the output of China’s 10 largest steelmakers will account for at least 60 percent of the industry’s total by 2025, which helps ensure profitability amid price fluctuations, according to the Ministry of Industry and Information Technology.

The industry has already seen a revival, bolstered by more rational supply. From January to May, the member companies at the China Iron and Steel Industry Association reaped 40.7 billion yuan (US$6.1 billion) as net profit – 32.2 billion yuan more from a year ago – after the nation reduced 42.5 million tons of steel capacity.

“But it is far from enough to achieve the government’s targets merely by supply cut,” said Xu Liying, an analyst at Lange Lange Steel Information Center, a domestic steel industry consultancy. “We will see more mergers between steel giants in the coming years.”

China has long been mulling mergers among steel companies but the process has been slow for vested interest between companies and the local governments.

“Things would start to change radically bolstered by the authorities’ resolution this time,” Xu said. “They are giving more powerful commands on steel companies.”

The merger between Baosteel and Wuhan Steel last year has been an important step in the process, which forged the nation’s largest steel company.


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