Argus Media Ltd.

Argus Media Ltd.

China`s Baowu takes over Magang Steel


Source: Argus Media Ltd.

Singapore -- China's state-controlled Baowu has taken majority control of Anhui-based steelmaker Magang Steel, as Beijing accelerates the consolidation of its steel sector to improve efficiency, reduce emissions and capacities, and help build larger plants and blast furnaces.

State-owned Assets Supervision and Administration Commission (Sasac) of Anhui province, which owns Magang, will transfer 51pc of Magang's holding to Baowu without any charge.

Baowu, world's second-largest steelmaker, was formed in 2016 with the merger of Baosteel and Wuhan Iron & Steel. The group currently has a total capacity of 70mn t/yr, while Magang has a capacity of 20mn t/yr.

Baowu has set a 'strategic target' of becoming a 100mn t/yr steel producer and 'a leader in the global steel industry', although it has eliminated an unspecified volume of redundant capacities since its establishment in 2016.

Baowu and Magang have one listed entity each on the Shanghai Stock Exchange — Baosteel and Maanshan Iron & Steel, respectively. Baowu will hold a controlling 45.54pc stake in Maanshan Iron & Steel after the merger.

This reorganisation is an important measure in implementing the Communist Party Central Committee and the State Council's goal of promoting the healthy development of China's steel industry, implementing supply-side structural reforms and accelerating the merger and reorganisation of overcapacity industries, Baowu said in a statement.

Baowu produced 67.25mn t of crude steel in 2018, while Magang produced 19.64mn t. Luxembourg-based ArcelorMittal, the world's largest steel producer, posted 92.50mn t of production in 2018. ArcelorMittal has announced production cuts in Europe this year, which may help Baowu become the world's largest steel producer in 2019.

Beijing announced the fulfilment of its 2016-2020 capacity reduction target of 150mn t/yr by 2018 itself. Over the next few years it may focus on reshaping the steel sector by creating larger companies with bigger blast furnaces and better environmental controls, shutting down small and chronically loss-making zombie mills and pushing city steel mills to coastal areas, where large plants have been approved and are being constructed.

Since China allows new blast furnace-based steel capacities only if higher capacities are eliminated elsewhere, the newer plants have not only eliminated their own older, smaller capacities but also bought older capacities from other steel producers to meet their targets of capacity elimination.

China's crude steel capacity growth shows no signs of slowing down despite the country's extensive capacity reduction efforts, with January-April crude steel output rising by 10pc to around 315mn t, fuelled by strong downstream demand from the construction sector, which has led to higher capacity utilisation at Chinese mills.

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