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FEATURE: China’s 60% steel concentration aim still valid

China’s local authorities are not ready to surrender and admit their failure to achieve the 60% consolidation target in China’s steel industry by 2020 mainly via mergers and acquisitions even though there are only eight months for them to work towards the ambition and despite that China’s top ten steel mills contributed to only 36.6% of the country’s 996 million tonnes of crude steel output for 2019.

The contribution from the top ten Chinese steel mills, thus, grew merely 2.4 percentage points from 2015, according to the statistics from the China Iron & Steel Association (CISA), underlying the extreme challenges for the level to jump by 23.4 percentage points until December 2020.

Many regions and provinces including North China’s Hebei, Central China’s Henan, East China’s Jiangsu and Northwest China’s Xinjiang, nevertheless, have released their plans on further merging their local steel capacities under their respective leading mills for 2020, Mysteel Global noted.

Hebei is China’s top steelmaking province followed by Jiangsu and Shandong, according to their previous years’ steel production.

Mission impossible, but what if deadline extended?

To achieve the target, “there is still quite some room for the Chinese steel industry to accomplish the mission especially when the concentration level in North China’s Beijing-Tianjin-Hebei region even declined,” admitted He Wenbo, secretary general of the China Iron & Steel Association (CISA) at an industrial meeting on April 22.

The top four steelmakers in the Beijing-Tianjin-Hebei region, for example, contributed to 25% of the country’s total steel output for 2019 as against the 30.8% in 2015, He noted, which has been partly due to the severe excess capacity cuts over 2016-2018, as well as re-identification efforts by the local authorities, with Hebei, for example, to shut down all its steel mills in the cities of Langfang and Zhangjiakou for its economic development strategy, Mysteel Global understands.

In the past couple of years, the most eye-catching and sizeable M&A has been Shanghai Baosteel Group’s merger with Wuhan Iron & Steel Group into the new entity of China Baowu Steel Group (Baowu Group) by the end of 2016, and it became the world’s top steelmaker at almost 100 million tonnes/year steel capacity by 2019 via the takeover of Ma’anshan Iron & Steel Group and Chongqing Iron & Steel as well as its greenfield Zhanjiang steelworks in South China’s Guangdong province.

However, market sources noted that the target deadline had already been extended once from 2015 to 2020, and it may well be extended again so long as the target is ultimately been hit.

“I think the 60% or the actual higher concentration level matters more than the 2020 deadline, as in the long run, China does need to consolidate its steel capacities to enhance the competitiveness of its steel mills both inside China and in the global market, so the deadline is negotiable, but not the 60% contribution from its ten steel mills,” a Beijing-based steel analyst commented.

Table: China’s top 10 mills’ contribution over 2015-2019

Year

Contribution to country’s steel output

2015

34.2%

2016

35.9%

2017

36.9%

2018

35.3%

2019

36.6%

Source: CISA posts

Local authorities striving to meet the 2020 deadline

Nevertheless, it will still be a great achievement if it can be achieved by 2020, and several local authorities have already released their detailed plans to do their parts in enhancing the concentration in the country’s steel industry, even though their contribution may appear insignificant compared with the breathtaking move by Baowu Group.

Handan city in North China’s Hebei province, for example, will consolidate its 17 local blast-furnace steel mills into eight entities by 2020, according to a government development plan released in March, excluding those independent foundries and electric-arc-furnace steel producers.

As part of the plan, the city government will build a steel conglomerate at over 5 million t/y by bringing Hebei Xinjin Iron & Steel Co (Xinjin), Wen’an Iron & Steel Co (Wen’an), Hongrong Iron & Steel Co (Hongrong) and Wu’an Yongcheng Foundry Industry Co under one arm, tentatively named as Hebei Mingbin Iron & Steel Co.

Besides, the city government also encourages Ji’nan Iron & Steel Group to grow into a 6 million t/y steel mill via the acquisition of Wu’an Yuhua Iron & Steel Co, Hebei Wenfeng Iron & Steel Co, and Hebei Xinghua Iron & Steel Co.

Xuzhou city in East China’s Jiangsu province, with 21 million t/y steel capacity from its many small-sized steel producers, is another one that has vowed to trim its local steel capacity by 30% and at the same time integrate its 18 local steel mills, many below 2 million t/y, into its top three steel mills including Jiangsu Xugang Iron & Steel Group, Zhongxin Iron & Steel Group, and Xuzhou Jinhong Iron & Steel Group, all by the end of 2020.

Also by the end of 2020, Anyang city in central China’s Henan province commits itself to consolidating its 11 local steel producers into four entities and to raise special steel proportion to 30% of its total steel output, as it disclosed in August 2018.

Besides, the Anyang city government targets to upgrade all its blast furnaces to 1,200 cu m, converters to 120 tonnes and electric arc furnaces to 100 tonnes to meet up all the high-level industrial standards, as specified in China’s latest industrial development guidelines.

Baowu remains the role model in M&As

As for individual steel producers, Baowu Group will not stop its march even though it has become a 100 million t/y steel giant, as it still shoulders the greatest responsibility in helping Beijing shaping up the steel industry, and its subsidiary in Xinjiang - Xinjiang Bayi Iron & Steel Co (Bagang) - will be the chosen to merge the local steel capacities in 2020, Chen Derong, Baowu’s chairman, disclosed, defining this as Bagang’s “top priority” for its 2020 planning.

To proceed with the M&A efforts in Xinjiang, Bagang, Baowu and Huabao, Baowu’s investment arm, quietly set up a joint venture tentatively named as Xinjiang Tianshan Iron & Steel United Co on March 30, a market source close to Bagang confirmed.

Bagang, acquired by Baosteel Group in 2007, is boasting a 10 million t/y steel capacity including both long and flat steel.

Other than Baowu, steel mills such as privately-owned Jiangsu Shagang Group and Jianlong Heavy Industry Co. have been relying on their own efforts to map out their steel capacities inside China so as to have a position in China’s top ten steel mills.

Among the efforts Shagang took over the Dongbei Special Steel in Northeast China in 2019 and Jianlong acquired bankrupt Haixin Iron & Steel in North China’s Shanxi province in 2018, Mysteel Global noted.

“Privately-owned steel mills may be freer in locking in their acquisition targets than the state-owned mills such as Baowu, though on the other hand, the support from the government, may not as comprehensive and powerful,” a second Beijing-based steel market source said.

“They (the privately-owned steel mills), nevertheless, have gained solid footings in China’s steel industry in the past two decades of development and they have been accepted by Beijing as crucial players too in the industrial consolidation drive,” he added.

Shagang, headquartered in Zhangjiagang, East China’s Jiangsu province, is the country’s top EAF steel mill and the province’s largest integrated mill boasting 45 million t/y steel capacity including its blast furnaces.

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