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FEATURE: Views mixed on Jingye-British Steel proposal

Steel market sources in and out of China are divided on the recent news that Jingye Group, a privately-owned rebar maker in North China’s Hebei province, is mulling to acquire British Steel, arguing possible new markets will also bring along a series of uncertainties.

British Steel has entered insolvency this May and since then the steel mill has been running by the government when seeking a buyer at the same time, a few Chinese companies have been reported looking into the possibility of investment with the latest potential buyer now Jingye Group.

British Steel confirmed on November 5 that “discussions are taking place with a Chinese bidder interested in purchasing the whole of British Steel, with plans to expand British Steel’s operations as a key strategic acquisition to develop their operations outside of China”.

A Jingye official confirmed with Mysteel Global on a phone interview that “the final decision on the acquisition will be made around mid-November”, declining to comment further on details due to the “remaining uncertainties”, nor did she explain the reason behind the interest of acquisition.

British Steel investment wise or tricky?

Market sources that have been following Chinese steel mills’ overseas investment endeavours, however, shared different voices regarding Jingye’s decision.

Investing in overseas steel mills will be a solution for Chinese steel mills to still grow in size now that Beijing has been strictly controlling China’s steel capacity, a UK-based industry source said, adding that Jingye, as a privately-owned steel mill, has definitely felt the need to explore overseas opportunities.

“Buying British Steel will be a start for Jingye’s steel business in Europe, and this may open the door for it to produce and sell steel products to the UK and the European Union countries, as well as to extend from simply steelmaking to steel processing and downstream industries,” a US source commented.

The UK-produced steel products will also free Jingye some of the worries about trade protectionism and anti-dumping duties, he added.

A Beijing-based steel analyst, however, did not think now a good timing for Jingye to make the move especially British Steel.

“A lot of more uncertainties arise with the ongoing Brexit, and many practical problems such as overseas employees, company tax, whether steel exports to the EU will be under the quota control,” he said.

Since February 2, EU has introduced three-year safeguard measures concerning 26 steel products with quota control, and any quantity over the quota will be imposed a 25% duty until June 30, 2021, as Mysteel Global reported.

Besides, British Steel has 5,000 employees that will not be a burden if the company can operate at the full capacity and sales is good, but otherwise, that will be a burden, and the labour law is different, workers’ union is way more powerful and strikes are possible and may be frequent, he added, noting that steelmaking cost is comparatively higher in Europe because of its strict carbon emission control.

Jingye Group, with 12 million tonnes/year capacity, producing mainly rebar as well as HRC, medium plate and round bar, and it has been dealing in rebar sales in Malaysia.

An official from a large-sized steel mill once commented that overseas investments always require thorough market research and feasibility study.

“It is not only about products, but also political environment, infrastructure, employee localization, and even weather, and any missing puzzles may lead to unexpected outcomes,” he said.

Chinese steel mills’ recent overseas footprints

If Jingye succeeds in acquiring British Steel, this will be the second known steel investment by the Chinese steel producers in Europe with the first one being Hebei Iron & Steel’s Serbian steel mill.

Other than Europe, Chinese steel mills have been actively exploring opportunities in the ASEAN countries especially in Indonesia and Malaysia but all have been greenfield integrated steel investments so far.

PT. Dexin Steel Indonesia is a joint venture by Delong and Tsingshan Group’s Shanghai Decent Investment (Group) Co in Indonesia, which started the construction works on the 3.5 million tonnes/year integrated steel mill in February and will be producing carbon steel bars and wire rods when commissioned.

Besides, Tsingshan is operating at least 1.5 million t/y of nickel pig iron and 3 million t/y of stainless capacities through its two other Indonesian subsidiaries - PT. Indonesia Guang Ching Nickel and Stainless Steel Industry and PT. Indonesia Tsingshan Stainless Steel, according to the company website.

In Malaysia, Alliance Steel, jointly invested by China’s state-owned Guangxi Beibu Gulf Port International Group Co and privately-owned Guangxi Shenglong Metallurgical Co, is now operating a 3.5 million t/t steelworks producing bar, high-speed wire rod and H-beam, as reported.

Among the investment cases under brooding is China Baowu Steel Group, China’s largest steelmaker, that mulls building a steel presence in one of the ASEAN countries with Cambodia a possible choice of venue, as Mysteel Global reported.  

Written by Olivia Zhang, zhangwd@mysteel.com, and Hongmei Li, li.hongmei@mysteel.com