Apr 26 2022
China's largest steelmaker Baowu Group is taking majority control of a steel company in the Jiangxi province, fast-tracking the company's consolidation plan and boosting production capacity at time of heightened emphasis on decarbonization.
The Jiangxi province has agreed to transfer a 51% stake in Xinyu Iron & Steel Group (Xingang Group) to the steel giant, according to a statement from Xingang Group's Shanghai-listed arm on April 25.
The move will take Baowu one step closer to its annual crude steel output target of 200 million mt by 2025.
The transaction marks the first such deal in 2022 in China's steel industry, following an eventful 2021 that saw a series of combinations in the industry.
Consolidation has accelerated in China's steel industry in line with the country's decarbonization goals that got a major push in 2021, giving the industry more negotiating power over raw material and prices.
China's top 10 steelmakers are likely to account for about 46% of the country's production by end-2022, up from about 41% at the end of 2021 and 37% at the end of 2020, S&P Global Commodity Insights calculations showed.
The Jiangxi provincial government will hold the remaining 49% stake in Xingang Group after Baowu takes the majority share, according to the company statement.
Xingang Group produced about 11 million mt of crude steel in 2021 that will take Baowu's annual crude steel production to about 131 million mt.
Baowu, which is also the world's largest steelmaker, remains at the forefront of consolidation efforts by China's steel industry. The company is also in the process of taking over state-owned Shandong Iron & Steel Group (Shangang Group) with annual crude steel production of about 28 million mt.
Baowu's steelmaking entities will span eight provinces and two municipalities following the absorption of Xingang Group and Shangang Group, with annual crude steel output of about 160 million mt, accounting for 15%-16% of China's total steel production, up from 12% currently.
Baowu's target of achieving 200 million mt/year of crude steel output by 2025 suggests its acquisition spree will likely continue over the coming years.
China's steel industry consolidation is expected to maintain a healthy pace in 2022, with some potential mergers and acquisitions in sight.
Privately-owned Fangda Steel Group has been in negotiations to take over an 80% stake in state-owned Anyang Iron & Steel in northern China's Henan province.
The takeover, if successful, will take Jiangxi-headquartered Fangda's annual crude steel output to 31 million mt/year, from 20 million mt/year currently, elevating it to the position of the seventh biggest steelmaker in China, up from 10th.
China's steelmaking hub Hebei province in February also urged leading local steel mills to form several mega steel companies through cross-province or cross-border mergers and acquisitions.
China's steelmakers are expected to expand through mergers and acquisitions to gain market share and maintain healthy profit margins, with the country's steel production capped due to its decarbonization efforts, and steel demand at a plateau as urbanization nears completion, market sources said. Small steelmakers that are facing rising environmental protection costs and shrinking market shares are also looking to partner with big companies to survive.