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Baowu adds East China's XISCO to its large portfolio

ABSTRACT

China Baowu Steel Group (Baowu), already the world's largest steel producer by capacity and production, has advanced its merger and acquisition (M&A) strategy by taking control of Xinyu Iron & Steel Co (XISCO), another major state-owned steel producer in East China's Jiangxi province.

In an April 24 release issued by XISCO's Shanghai-listed arm, XISCO announced that the State-owned Assets Supervision and Administration Commission of Jiangxi Province, its 100% share owner, had signed an agreement with Baowu on April 23 agreeing to transfer 51% of its share in XISCO to Baowu without charge. 

 

After the transfer is completed, Baowu will become XISCO's controlling shareholder and XISCO will be another major state-owned steelmaker joining Baowu's group following several others including Magang Group Holding (Magang) in East China's Anhui province, and Taiyuan Iron & Steel Group (TISCO) in North China's Shanxi province.

 

XISCO is the largest state-owned steelmaker in Jiangxi with a crude steel output of 9.89 million tonnes in 2020, according to the latest statistics of World Steel Association. It produces both carbon steel and specialty steel, both long steel and flat steel. Its flat steel capacity is over 7 million t/y, according to its official website. The company claims to have made a net profit of Yuan 3.2 billion ($487 million) during January-September last year. More recent performance data is unavailable.

 

"Domestic steel producers are seeking M&A opportunities, in order to avoid excessive market competition (with makers of similar products) and to strengthen their own competitiveness. This (strategy) will enhance their likelihood of survival in the face of fiercer competition in the domestic industry," a XISCO official observed. 

 

"If we had to become a M&A target eventually, we are lucky to have Baowu," he said. 

 

M&A is a major theme of China's steel industry as the country endeavors to raise industry concentration to enhance its pricing power, especially in terms of imported steel raw materials, as Mysteel Global reported. 

 

The country has a goal of raising industry concentration to 60% – namely the top ten steelmakers contributing to 60% of the country's total steel production – yet by 2021, the ratio reached 41.5%, despite the fact that the year saw some major takeovers, including those of Baowu, as reported.

 

Baowu's efforts in this regard have gained pace in recent few years after its establishment in 2016 through the merger of Baosteel Group and Wuhan Iron & Steel Group, Mysteel Global noted.

 

Baowu acquired Magang in June 2019, TISCO in August 2020, Southwest China's Chongqing Iron & Steel Group in September 2020 and Kunming Iron & Steel Co in February 2021 and then Shandong Iron and Steel in East China's Shandong province in July 2021, all major state-owned companies, as reported.

 

"XISCO's acquisition had been expected," a Beijing-based steel analyst commented. "There are not so many candidate-takeover steelmakers left, making us wonder who the next target (of Baowu) will be," he added.

 

Thanks to its efforts, by 2020 Baowu had already topped ArcelorMittal to become the world's largest steel producer with a crude steel output at 115 million tonnes, according to WSA's statistics. 

 

Written by Olivia Zhang, zhangwd@mysteel.com

Edited by Zhenqi Yang, yangzhenqi@mysteel.com