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China Baowu Steel takes control of Magang at zero cost

China Baowu Steel Group (Baowu), China’s largest steel producer, has been granted the controlling 51% stake in Magang (Group) Holding (Magang) free of charge, which will help with China’s steel industrial concentration drive and enable Baowu to catch up with ArcelorMittal, the world’s top steel mill, in capacity, Chinese market sources commented on Monday.

“The Stated-owned Assets Supervision and Administration Commission (SASAC) of Anhui Province, the ultimate owner of Magang, signed the agreement with Baowu on May 31 on the stakes transfer… with the transfer, Baowu is also controlling Ma’anshan Iron & Steel via Magang with a majority 45.5% stake,” Ma’anshan Iron & Steel, Magang’s Shanghai-listed arm, released the formal announcement on June 3, confirming the market talks on June 2.

“Baowu-Magang marriage was easy, as both the companies are state-owned, with Baowu under the ultimate ownership of the central government,” a Beijing-based steel analyst commented.

Baowu, headquartered in East China’s Shanghai, came into being in December 2016 as a new entity of Baosteel Group and Wuhan Iron & Steel Group, and is operating a 70 million t/y steel capacity from its steelworks in Shanghai, East China’s Jiangsu, Central China’s Hubei, Northwest China’s Xinjiang and South China’s Guangdong as well as mining investments in and out of China.

Magang, headquartered in Ma’anshan City, Central China’s Anhui province, is operating a 20 million t/y steel capacity and having its own domestic iron ore mining operations.

This has come as little surprise, as Baowu disclosed its dream to become a 100 million tonnes/year high-end steel maker by 2021 back in 2017, and in September 2018, the rumour on a possible merger between Baowu and Magang emerged when the two jointly invested in Huabao Metallurgical Asset Management Co, together with Anshan Iron & Steel Group to finance China’s steel industrial consolidation.

Besides, Beijing has explicitly shared its plan to raise the contribution of China’s top ten steel producers to 60% of the country’s steel output by 2020, and mergers and acquisitions will be one of the core themes in China’s steel industry for 2019 and 2020, as reported.

As of 2018, however, the top ten only produced 34.4% of the country’s total steel output, Mysteel Global calculated basing on statistics from China Iron & Steel Association, which was still far away from the target.

With the latest move, Baosteel is only some 10 million t/y short of ArcelorMittal in steel capacity, Chinese market sources noted.

In 2018, Baowu and Magang produced 67.3 million tonnes and 19.6 million tonnes of steel respectively, which were very close to ArcelorMittal’s 92.5 million tonnes, according to the data from the World Steel Association.

Written by Olivia Zhang, zhangwd@mysteel.com

Edited by Hongmei Li, li.hongmei@mysteel.com