China is Embracing her Biggest Iron and Steel Corporation 06-30-2016

The possibility that Baosteel Group and Wuhan Iron and Steel Corporation (WISCO) may merger together has finally worked out.


 


Both Baosteel Group and WISCO released public announcement on 26 June that the controlling shareholders, WISCO and Baosteel Group, have been planning and preparing for the issues concern the strategic reorganization, with the specific plan yet to confirm. It has disclosed that the Baosteel and WISCO are to implement trading halts since 27th June and would confirm the reorganization scheme as soon as possible during the period of halt.

 

However, Shaoguan Songshan Steel, Baosight, and Baosteel Packaging, the listed companies of Baosteel, have all not released announcement for halting yet, while the Xinjiang Ba Yi Iron & Steel Group, which also owns by Baosteel, has been halted for several days due to the issues concern asset reorganization. According to the bulletin released by Ba Yi Iron & Steel and Baosight on the afternoon of 26th, the matters concern substantial asset restructuring of the two listed companies would not affected by the reorganization between Baosteel and WISCO, neither would it influence the routine production and operating activities of the companies.

 

Both the Baosteel and WISCO are central enterprises that have been directly superintended by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC). WISCO is the first extra large-sized iron and steel complex that was built since the founding of People’s Republic of China, and the production base of which that located in Wuhan was established since 1955 and not until the year of 1958 it was completed and put into operation; while Baosteel Group was established in Shanghai in 1978 and was formally put into operation in 1985.

 

After the mergence of the two companies, the company ranking of the global iron and steel industry would be reset. In 2015, the output of crude steel of Baosteel was about 34.93 million tonnes, while the WISCO’s was 25.77 million tonnes, respectively ranked the 5th and 11th. According to the output ranking among global iron and steel companies, we can see that ArcelorMittal ranked the 1st with its 97.13 million tonnes of output and followed by Hebei Iron and Steel (HBIS) with the output of 47.74 million tonnes.

 

Rankings of the Output among the Major Iron and Steel Companies in 2015

Output of crude steel (10 thousand tonnes)

 

Source: World Steel Association

 

After the mergence of Baosteel and WISCO, the total output of the new company would reach to 60.7 million tons, and thus it would turn to be a steel magnate that ranked only second to ArcelorMittal around the globe and at the same time, to be the first among China’s steel industry. Its output of crude steel would take account of 7.5% of the total 804 million tons of China’s market share.

 

Ma Guoqiang, 53 years old, was transferred to be the general manager of WISCO from Baosteel in July 2013 and then succeed Deng Qilin as CEO and secretary of the Party committee. Ma worked in Baosteel for 18 years and served as general manager of Baosteel for years before his transfer to WISCO.

 

As the predecessor of Ma Guoqiang and senior staff of WISCO, Deng actually disagreed with the scheme of the mergence of Baosteel and WISCO. Deng started his career as a process technician in the workshop of WISCO in 1975 and then rose through the ranks to the CEO of the company. In 2004, during his presidency of general manager of WISCO, the output of crude steel of the company was only 9 million tonnes, which was far less than Baosteel’s of 30 million tonnes. Worried about the possibility that Baosteel may swallow WISCO up, Deng Qilin formulated a relatively radical plan for expanding capacity. Under his plan, WISCO successively reorganized Echeng Steel, Liuzhou Steel, and Kunming Steel, which once made total capacity of WISCO amount to 40 million tons.

 

From the perspective of public opinions, it is expected to accelerate the step of the mergence of Baosteel and WISCO after Ma Guoqiang succeed the position of Deng Qilin. However, Ma has not shown any intentions on the mergence among his speeches or talks in public occasions. ‘’There aren’t many opportunities leave for WISCO in terms of the merger and reorganization among the industry,” said Ma Guoqiang on the annual general meeting of stockholders of WISCO on June 2016.

 

While Chen Derong, the general manager of Baosteel, has repeatedly announced that the company strongly hoped to implement merger and reorganization among the industry. Chen has once mentioned, on the March of this year, that the industrial concentration of the steel industry in the domestic market was quite low, besides, he also disclosed that Baosteel only took account for 5% of the market share; and therefore, what the company should do in the future is to expand its market share by the means of merger and reorganization, but in terms of the specific target, no further details available.

 

Senior staffs of Baosteel disclosed that the decision-making staff of the two companies convened meetings on the early 2016 for discussing the matters of merger and reorganization and came to an agreement.

 

As the steel industry is in the extreme downturn at the moment, the merger of the two Groups could also benefit from each other. In 2015, the loss of major steel enterprises amounted to RMB64.534 billion, among which WISCO and Baosteel were also facing a depressed business performance.

 

The net loss of WISCO was RMB7.51 billion last year, which made WISCO rank first of the A-shares loss. This has been the first annual loss since its listing in 1999 for WISCO. The performance of WISCO has all the way declined since 2007, when the company amounted the peak of profit, that was RMB6.519 billion of net margin.

 

Last year, Baosteel, although has had RMB1.01 billion of net profit, faced its worst performance among the past 18 years. However, the Ba Yi Steel and Shaoguan Songshan Steel, the subsidiary companies of Baosteel Group, respectively lost RMB2.6 billion

 

In 2015, the total profit of Baosteel Group was RMB1.03 billion, with year-on-year growth of 89%; while WISCO was in the loss of RMB6.986 billion.

 

After the mergence of the two companies, less direct competitions would present to Baosteel and WISCO. The most direct proof is the two newly-built iron and steel bases that was built to seize the South China market. In 2012, the Zhanjiang Iron and Steel Project of Baosteel and the Fangchenggang Iron and Steel Project of WISCO were approved and put into construction. The two steel factories located in Guangdong Province and Guangxi Province respectively, with the straight-line distance of no less than 250 kilometers. Both the factories targeted on the family appliances and automobile steel sheet market in the areas of South China, which was once regarded as ‘targeting overlapping’,

 

According to an official of Baosteel Group, after the mergence been settled, Baosteel would take the current situation of Fangchenggan project into consideration to adjust the following constructing scheme of the Zhanjiang project if the Fangchenggang project still operated by the new company. In the new scheme, it may remove the No.3 blast furnace of Zhanjiang project to Fangchenggang as Zhanjiang Steel has planned and established two furnaces; while in Fangchenggang project, there’s only one cold rolling production line and no available furnace equipment.


*The article is edited and translated by CCM. The original article comes from Jiemian.com.


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