China’s Baowu and Ansteel deny merger speculation
“As of now, neither our parent company nor we have receive any information in either written or oral format from the government regarding the abovementioned matter (merger and restructuring), nor are we holding any talks with Ansteel on this very topic,” Baoshan Iron & Steel Co, the Shanghai-listed arm of Baowu clarified on November 22, one day after Ansteel’s Shenzhen-listed arm – Angang Steel Co – posted a similar clarification on November 21.
The market speculation on the Baowu-Ansteel marriage emerged when Dai Zhihao, the 55-year old former chairman of Baoshan Iron & Steel was appointed as the general manager of Ansteel by China’s central government on November 19, thus ceasing serving the posts at Baoshan Steel and Baowu Group.
Some market sources and media, thus, linked the case to the personnel changes prior to the merger of Baosteel Group-Wuhan Iron & Steel Group (Wugang) in 2016 when Ma Guoqiang, then general manager of Baosteel was appointed as Wugang chairman in 2013.
Despite of clarifications by the two companies, the likelihood of their mergers still lingers in the future, Wei Junyi, ferrous analyst from Shanghai-based Haitong Futures said.
“To increase the top ten steel mills’ contribution to the country’s steel output to 60% by 2020, Beijing may have to resort to some administrative and government initiatives instead of relying on purely market-driven forces, and it will be way more efficient to just combine the top steel mills to reach the target,” he explained.
China's top ten steel mills contributed to 48.8% of the country's total steel output in H1, way higher than 2017's 36.9%, according to the data from the China Iron & Steel Association. Baowu Group, headquartered in Shanghai, is China’s No.1 and World’s No. 2 steel giant with a 70 million tonnes/year of crude steel capacity with plants in Shanghai, Northwest China’s Xinjiang, Central China’s Hubei, and South China’s Guangdong province.
Ansteel, headquartered in Northeast China’s Liaoning province, is boasting 39 million t/y steel capacity with works in Liaoning, and Southwest China’s Sichuan via its Panzhihua Iron & Steel Group.
Geographical distance between the two companies’ headquarters, will pose no obstacle to a merger.
“Such a marriage is more to share technology, to optimise steel product structure, and to enhance pricing power in raw material procurements instead of a physical consolidation, so distance is no issue,” a Singapore-based analyst commented, adding, though, both steel groups, with many subsidiaries, will take some time to realize related consolidation.
The speculation alone sent both the listed arms’ stock prices up on November 21, with Anshan Steel’s share price closing at Yuan 6.07 ($0.9) on Wednesday, up 3.4% day on day and Baoshan Steel share price rose 1.78% on day to Yuan 7.43.
Despite the little possibility of a marriage between Baowu and Ansteel, mergers and acquisitions, nevertheless, will be a theme for the Chinese steel industry in the coming two years to realize the 60% target, as Beijing has reiterated this on many occasions as part of the efforts to further enhance the industry’s competitiveness after the accomplishment of excess steel capacity cuts over 2016-2018.
This has been the second time in three months for Baowu to be speculated for a merger, as earlier on September 13 Baowu and Ma'anshan Iron & Steel (Magang) were the targets with their investments into a joint venture—Huabao Metallurgical Asset Management Co to help with China’s steel industrial consolidation, with Ansteel being a partner too, as reported.
Written by Olivia Zhang, zhangwd@mysteel.com, and Hongmei Li, li.hongmei@mysteel.com
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